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Confidential 
No.  207 

REPORT 

TO  THE 

Reserve  Bank  Organization 
Committee 

BY  THE 

Preliminary  Committee  on 
Organization 


H.  Parker  Willis,  Chairman 
Edmund  D.  Fisher  Joseph  A.  Broderick 

Andrew  A.  Benton  Ralph  Dawson 

O.  Howard  Wolfe  Stephen  H.  Farnham 


The  Reserve  Bank  Organization 
Committee,  Washington,  D.  C. 

New  York,  June  1. 

Gentlemen: 

The  undersigned,  after  careful  investigation,  beg  leave  to  submit 
the  following  report  upon  the  nature  and  treatment  of  the  various 
problems  arising  in  connection  with  the  organization  of  the  new 
banking  system  provided  for  under  the  Federal  Reserve  Act  of 
December  23,  1913,  the  same  being  in  accordance  with  the  instruc- 
tions conveyed  by  you  through  the  Comptroller  of  the  Currency, 
Hon.  John  Skelton  Williams. 

In  preparing  the  report  herewith  transmitted,  special  assign- 
ments for  individual  study  and  inquiry  were  from  time  to  time  made, 
the  effort  being  to  secure  the  best  work  that  could  be  done  by 
each  member  of  the  group  engaged  upon  this  investigation.  Co- 
operation between  these  individuals  has,  however,  been  obtained 
throughout,  and  every  portion  of  the  work,  when  completed  has 
been  submitted  to  and  revised  by  each  of  those  whose  names  are 
hereto  appended.  At  meetings  held  for  that  purpose,  there  has 
been  general  discussion  of  the  methods  to  be  pursued  and  of  the 
conclusions  properly  to  be  reached  in  each  of  the  several  divisions 
of  the  report.  The  document  is,  therefore,  presented  as  the  joint 
opinion  of  those  whose  signatures  are  appended  to  it,  and  has  the 
approval  of  each  and  all  of  them. 

In  addition  to  the  work  thus  done,  some  material  has  been 
obtained  from  outside  sources,  under  careful  supervision  and  direc- 
tion. The  portions  of  the  material  thus  derived  are  indicated  in 
the  document  itself,  and  their  authorship  is  duly  stated. 

Special  acknowledgment  is  made  to  Mr.  Max  May,  of  the  Guar- 
anty Trust  Co.  of  New  York  City,  for  advice  and  suggestions 
from  the  beginning  of  the  work;  as  well  as  to  Mr.  Ralph  Van  Vech- 
ten,  of  the  Continental  and  Commercial  National  Bank  of  Chicago, 
for  recommendations  on  certain  special  topics;  and  to  Messrs. 
Harry  E.  Ward  and  C.  C.  Robinson  of  the  Irving  National  Bank  of 
New  York  City  for  important  work  on  the  accounting  sections  of 
this  report.  Thanks  are  likewise  generally  expressed  to  other 
bankers  and  experts  for  courtesies  and  aid  at  various  points  in  the 
course  of  the  inquiry. 

Thus  prepared  and  submitted,  the  recommendations  of  the 
report  are  offered  as  embodying  a general  scheme  of  organization 
for  the  new  system  which  it  is  believed  will  result  in  carrying  out 
the  spirit  and  purposes  of  the  Federal  Reserve  Act. 

SCOPE  OF  REPORT. 

Before  proceeding  to  detailed  discussion,  it  is  deemed  well  to 
enumerate  the  various  specific  items  of  investigation  suggested  by 


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a careful  analytical  survey  of  the  Federal  Reserve  Act.  This  out- 
line survey  may  be  presented  as  follows: 

(1)  DISTRICT  MAP. 

(2)  FORM  OF  DESIGNATION  OF  CITIES  AND  DISTRICTS. 

(3)  SUBSCRIPTION  BLANKS. 

(4)  SHAREHOLDERS’  RECORDS  (AMOUNT  SUBSCRIBED 

and  AMOUNT  PAID  IN). 

(5)  RULES  and  REGULATIONS  GOVERNING  the  TRANS- 

FER of  STOCK. 

(6)  BY-LAWS  (FEDERAL  RESERVE  BOARD — FEDERAL 

RESERVE  BANK). 

(7)  BY-LAWS  (BRANCHES). 

( 8 ) RULES  and  REGULATIONS  for  BRANCHES. 

(0)  CERTIFICATE  SHOWING  DISTRICT  LIMITS. 

(10)  APPLICATION  BLANK  FOR  MEMBER  BANKS. 

(11)  CERTIFICATE  OF  ORGANIZATION. 

( 12  ) AUTHORIZATION  OF  COMPTROLLER  OF  CURRENCY 
TO  OPEN  RESERVE  BANK. 

(13)  CERTIFICATE  OF  ELECTION  OF  “ELECTOR.” 

(14)  LISTS  OF  ELECTORS. 

( 15  ) NOMINATING  BALLOTS— RULES  AND  REGULATIONS. 

(16)  LISTS  OF  NOMINEES  (WITH  COLUMNS  FOR  1.  2.  3. 

4,  5,  CHOICES). 

(17)  BOOKS  FOR  FEDERAL  RESERVE  AGENT. 

(18)  SCHEDULE  FOR  COMPENSATION — ALL  CLASSES. 

(19)  CLASSIFIED  LIST  OF  FEDERAL  RESERVE  BANK 

DIRECTORS  (WITH  THEIR  TERMS). 

(20)  CERTIFICATE  OF  COMPTROLLER  OF  CURRENCY 

SHOWING  REDUCTION  OF  CAPITAL. 

(21)  DIVIDEND  RECORD  (SHOWING  SEGREGATION  OF 

EARNINGS  AFTER  DIVIDEND  PAYMENTS)  and 
DISPOSITION  of  SURPLUS. 

(22)  ARTICLES  OF  ASSOCIATION.  Organization  Certificate. 

(23)  CERTIFICATE  OF  COMPTROLLER  TO  CONVERTED 

BANKS. 

(24)  RULES  and  REGULATIONS  re  SUBSCRIPTIONS  of 

STATE  INSTITUTIONS. 

(25)  BY-LAWS  (governing  conduct  in  acting  upon  applications 

of  State  Banks,  Banking  Associations  and  Trust  Com- 
panies). 

(26)  OATH  OF  OFFICE — MEMBERS  FEDERAL  RESERVE 

BOARD. 

(27)  STATEMENT  OF  LEVY  FOR  EXPENSES. 

(28)  GENERAL  ANALYSIS  OF  ANNUAL  OPERATIONS  AS 

BASIS  FOR  REPORTS.  Dependent  upon  Plan  for  Sta- 
tistical Department. 

(29)  PLAN  OF  ORGANIZATION  FOR  FEDERAL  RESERVE 

BOARD. 

(30)  PLAN  FOR  EXAMINATION  OF  FEDERAL  RESERVE 

BANKS.  Regulations  Regarding  Statements  and  Re- 


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ports.  Weekly  Statement  of  Condition  of  Federal  Re- 
serve Banks.  Consolidated  Statements. 

(31)  RULES  and  REGULATIONS  re  ISSUE  AND  RETIRE- 

MENT OF  FEDERAL  RESERVE  NOTES  and  DE- 
LIVERY to  and  CUSTODY  by  FEDERAL  RESERVE 
AGENT. 

(32)  CONTROL  OF  BONDS  OF  FEDERAL  RESERVE  AGENTS. 

(33)  REGULATIONS  FOR  INTERNAL  MANAGEMENT  OF 

BANK’S  BUSINESS. 

(34)  REGULATIONS  GOVERNING  FEDERAL  ADVISORY 

COUNCIL. 

(35)  GENERAL  BANKING  PLAN  including-  Certificate  of  Or- 

ganization, Minutes,  By-laws,  Stockholders’  Records, 
Statements  and  Reports,  General  Ledger,  Record  of 
Rates — in  classes  (s.  d.  Sec  14),  Tellers,  Credit  De- 
partment, Collection  Department,  Issue  Depart- 
ment. Loans  and  Discounts  (Schedule  of  Maturities) 
Investments — Data  (Schedule  of  Maturities  Support- 
ing Business,  (Kind),  Bookkeeping,  Audit,  Open 

Market  Record,  Statistics,  Reserve Continuing 

Record  of  Elements  of — With  Percentage,  Vault  Con- 
trol, Foreign  and  Domestic  Exchange,  Circulation, 
Record  of  Note  Series  and  Collateral,  Record  of 
Notes  of  Other  Banks,  Continuing  Record  of  De- 
posits with  U.  S.  Treasury  (16),  Continuing  Record 
of  U.  S.  Bond  Accounts. 

(36)  REGULATIONS  GOVERNING  PURCHASES. 

(37)  FORM  OF  NOTE,  Determination  of  Letter  and  Serial 

NUMBER. 

(38)  REGULATIONS  GOVERNING  TRANSFER  OF  FUNDS 

AND  CHARGES. 

(39)  GENERAL  CLEARING  PLAN. 

(40)  APPLICATIONS  and  REGULATIONS  GOVERNING  ES- 

TABLISHMENT OF  FOREIGN  BRANCHES. 

Some  of  the  foregoing  items — for  example,  numbers  2,  9,  11,  13, 
and  others  in  the  above  list — will  best  be  studied  in  the  office  of 
the  Comptroller  of  the  Currency,  because  of  their  predominantly 
legal  or  administrative  nature.  Those  which  are  considered  ger- 
mane to  the  present  inquiry  have  been  dealt  with  in  this  report. 

It  has  been  deemed  wise  in  preparing  this  report  for  transmis- 
sion to  divide  it  into  two  distinct  parts  as  follows: 

Part  I.  Dealing  with  the  work  of  the  reserve  bank  organiza- 
tion committee  and  the  process  of  organizing  the  new  banking- 
system  up  to  the  time  that  the  Federal  reserve  bank  directors  are 
named  and  the  Federal  Reserve  Board  appointed. 

Part  II.  Dealing  with  the  subsequent  organization  and  opera- 
tion of  the  new  system,  the  relations  between  the  Federal  Reserve 
Board  and  the  several  banks,  and  the  inner  workings  of  the  banks 
themselves. 


5 


Part  I. 

The  first  part  of  the  discussion  thus  outlined  may  itself  be 
divided  into  two  portions  as  follows: 

1.  A discussion  of  the  process  of  districting  the  country  for  the 
establishment  of  reserve  banks. 

2.  A discussion  of  the  process  of  providing  for  the  election  of 
directors  of  the  several  reserve  banks,  the  payment  of  subscriptions 
to  stock,  and  the  general  conditions  under  which  banks  may  be 
admitted  into  the  system. 

I. — DISTRICTING  THE  COUNTRY. 

We  may  first  deal  with  the  question  of  districting  the  country 
for  the  establishment  of  the  new  banks.  In  this  discussion  careful 
examination  has  been  made  of  the  hearings  before  the  Reserve 
Bank  Organization  Committee  dui’ing  its  tour  of  the  country  and 
of  many  of  the  briefs  filed  with  it  by  the  respective  places  that 
were  candidates  for  designation  as  reserve  bank  cities. 

CLASSES  OF  EVIDENCE. 

Available  data  relating  to  districting  may  be  generally  divided 
into  the  following  classes: 

(a)  That  relating  to  the  importance,  capital,  business,  and 
future  prospects  of  the  various  places  represented. 

(b)  That  relating  to  the  clearings  and  financial  transactions 
of  the  various  places,  and  their  relation  to  other  cities  with  ref- 
erence to  banking  accounts  and  reserves  carried  in  other  banks. 

(c)  That  relating  to  the  habits  and  customs  of  the  surround- 
ing communities  in  regard  to  applications  for  loans  and  in  regard 
to  the  distribution  of  their  business  between  different  cities  under 
the  present  banking  system. 

(d)  That  relating  to  railway  facilities,  times  of  communica- 
tion, and  delivery  of  mail. 

(e)  That  relating  to  the  capitalization  of  the  banks  of  the  sec- 
tion, state  and  national,  the  amount  of  their  deposits  and  of 
their  reserves. 

CHARACTER  AND  VOLUME  OF  LOCAL  BUSINESS. 

Relatively  little  attention  need  be  paid  to  the  evidence  with 
regard  to  the  character  and  volume  of  local  business,  or  with  ref- 
erence to  the  rapid  development  of  such  trade  and  industry  in  the 
past  or  its  probable  future.  Under  the  existing  banking  sys- 
tem competition  and  the  general  course  of  trade  have  mapped 
out  distinct  channels  within  which  funds  are  transferred,  and 
have  determined  the  distribution  of  banking  capital  upon  known 
lines.  There  is  nothing  in  the  new  act  to  alter  this  distribu- 
tion certainly  for  the  present,  and  there  is  no  reason  to  believe 
that  the  main  features  of  business,  its  distribution,  and  its  char- 
acter will  be  materially  altered  in  the  near  future.  They  will 
continue  about  the  same  under  the  proposed  system  as  they  are 
to-day.  The  chief  difference  that  will  be  gradually  developed 


G 


will  be  found  in  the  fact  that  those  who  have  prime  commercial 
paper  to  dispose  of  will  be  able  to  market  it  in  local  reserve  centres 
instead  of  relying  upon  distant  financial  centres.  But  inasmuch  as 
the  capital  and  reserves  of  the  new  banks  are  to  be  determined  as  a 
percentage  of  existing  bank  capital,  the  reserve  banks  represent  a 
function,  to  speak  mathematically,  of  existing  banks.  They  can- 
not do  more  for  the  given  section  in  which  they  are  situated 
than  their  capital,  contributed  by  existing  banks,  will  allow.  A 
certain  limitation  may  of  course  be  placed  upon  this  statement  in 
that  some  stock  may  be  sold  to  the  public  at  the  discretion  of 
the  Organization  Committee.  This,  however,  will  be  a limited,  and 
doubtless,  exceptional,  resource,  and  the  consequence  must  be 
that  in  order  to  enlarge  the  resources  of  a reserve  bank  it  would 
be  necessary  to  develop  those  of  existing  member  banks.  This 
will  be  done  as  the  wealth  of  the  various  centers  develops.  There 
is,  therefore,  no  direct  or  immediate  relationship  between  the 
proposed  reserve  bank  and  the  business  concerns  of  a given  dis- 
trict which  is  not  expressed  in  the  capitalization  of  the  banks 
of  that  district. 

QUESTION  OF  CLEARINGS. 

In  like  manner,  it  may  be  said  that  the  question  of  clearings 
is  not  one  that  is  vitally  essential  to  the  locating  of  the  new 
banks.  Much  of  the  testimony  adduced  has  to  do  with  the  rela- 
tive amount  of  clearings  at  given  places.  On  the  other  hand,  it 
has  been  frequently  pointed  out  by  witnesses  that  large  volumes 
of  trade  are  not  expressed  in  clearings.  The  reason  why  the 
clearings  need  not  be  primarily  considered  as  throwing  light  upon 
the  suitability  of  a given  point  as  the  location  of  a reserve  bank 
is  found  in  the  facts  that,  (a)  under  the  existing  system  of  bank- 
ing the  clearings  are  affected  by  many  extraneous  features  which 
will  disappear  under  the  new  system;  (b)  the  precise  amount 
of  the  clearings  varies  as  between  different  cities  and  will 
always  do  so,  according  to  the  number  and  character  of 
the  banks  and  the  nature  of  their  relations  with  one  another 
and  with  outside  banks.  Clearings  are  never  a very  good  index 
of  business  either  as  to  volume,  nature,  or  strain  on  the  finan- 
cial resources  of  the  places  where  they  are  effected.  There  is 
little  need,  therefore,  to  examine  figures  of  clearings  in  seek- 
ing to  place  the  new  reserve  banks.  In  all  probability,  even 
the  most  conscientious  study  of  clearings  would  be  found  to 
be  useless,  owing  to  the  complete  alteration  which  will  be  effect- 
ed so  soon  as  the  new  system  has  been  successfully  put  into 
operation  and  has  had  time  to  produce  its  results  in  changing 
the  direction  of  remittances  and  in  altering  modes  of  payment. 

CAPITALIZATION. 

Again,  the  bare  facts  as  to  the  capitalization  of  the  banks  and 
trust  companies  of  a given  city  or  region  are  of  only  secondary 
importance  in  determining  the  location  of  reserve  banks.  The 
law  specifies  that  no  reserve  bank  shall  be  created  with  a smaller 


7 


capitalization  than  $4,000,000  and  it  is,  therefore,  necessary  to 
obtain  in  every  district  an  aggregate  of  banking  capital  which 
shall  bear  the  proper  relation  to  this  minimum  amount  on  the  6 
per  cent,  basis  indicated  in  the  law.  For  reasons  which  will 
be  later  stated,  it  is  not  believed  that  anything  is  gained  by 
attempting  to  take  in  an  unduly  large  amount  of  banking  capital 
in  any  given  district.  Assuming  these  premises, — one  based 
on  legislative  provisions,  the  other  upon  general  reasoning — the 
question  how  great  or  how  effective  is  the  capitalization  of  exist- 
ing banking  facilities  in  any  particular  place  is  not  fundamentally 
important.  The  district  reserve  bank,  if  operated  upon  public- 
spirited  lines,  will  be  managed  in  such  a way  as  to  serve  in  an 
equitable  manner  the  various  needs  of  the  district,  and  will  be 
managed  by  directors  who  presumably  represent  the  whole  dis- 
trict, just  as  the  reserve  bank  system  will  presumably  be  oper- 
ated in  the  interests  of  the  country  as  a whole  and  without 
effort  to  serve  the  interests  of  one  particular  section  or  group 
of  persons.  It  may  be  said,  therefore,  that  since  the  capitalization 
of  the  whole  district  will  be  available  in  its  due  proportion  for 
the  uses  of  the  district  in  all  of  its  varied  parts,  the  develop- 
ment of  a portion  of  this  capitalization  at  a given  point  has 
no  fundamental  bearing  upon  the  placing  of  the  reserve  bank  at 
that  point.  Still  less  is  this  true  in  view  of  the  provisions  for 
the  creation  of  bi'anch  banks. 

RAILWAY  FACILITIES. 

A very  different  point  of  view  must  be  taken  with  respect 
to  the  question  of  railway  facilities.  The  Federal  reserve  bank  of 
a district  must  be  located  somewhere,  and  the  assumption  nat- 
urally is  that  it  will  be  located  in  the  place  which  is  most  acces- 
sible and  from  which  it  can  best  serve  the  community.  Other 
things  being  equal,  a large  city  is  favored  because  it  is  likely 
to  contain  a correspondingly  large  proportion  of  the  heavy  bor- 
rowers of  a community  and  to  bring  them  consequently  close  to 
the  reserve  bank  where  their  habits  and  methods  can  be  easily 
inspected.  It  remains  true,  moreover,  that  the  larger  places  are 
usually  those  where  the  railway  facilities  are  the  best. 

The  Federal  reserve  bank  is  furthermore,  called  upon  to  per- 
form the  service  of  dealing  for  its  members,  and  in  order  to 
effect  this  object  successfully  it  must  be  within  as  quick  and 
easy  reach  of  the  member  banks  as  practicable.  This  is  funda- 
mentally important  in  getting  the  clearing  system  into  effective 
operation,  and  it  is  believed  that  this  clearing  system  will  be 
found  to  be  one  of  the  most  significant  features  of  the  new  law. 
Moreover,  easy  communication  for  the  purpose  of  prompt  trans- 
mission of  funds,  the  shipment  of  currency  in  time  of  necessity 
with  as  little  delay  as  possible  and  the  prompt  receipt  of  deposits, 
as  well  as  the  affording  of  immediate  means  of  communication 
with  other  Federal  reserve  banks,  all  dictate  the  selection  of 
places  for  the  head  offices  of  such  banks  that  are  best  equipped 


8 


with  means  of  communication  and  are  able  most  speedily  to  re- 
ceive from  and  send  to  their  member  banks  such  funds,  checks, 
drafts  and  the  like  as  may  be  required  by  the. course  of  business. 
The  testimony  affords  considerable  valuable  information  on  this 
point. 

HABITS  OF  BORROWING. 

It  will  be  worth  while  to  devote  attention  to  the  data  that 
have  been  developed  with  respect  to  the  borrowing-  habits  of  the 
community  inasmuch  as  these  habits  undoubtedly  will  tend  to 
persist  and  it  is  not  desirable  to  break  them  except  where  neces- 
sary. For  example,  if  it  is  shown  that  a large  section  of  the 
surrounding  country  is  in  the  habit  of  dealing  with  point  A and 
of  discounting  its  paper  in  the  banks  of  A,  that  is  a considera- 
tion in  favor  of  recognizing  A as  the  center  of  the  reserve 
district  which  is  to  include  A and  the  territory  adjacent.  It  is 
also  an  argument  to  be  considered  in  that  it  indicates  that  A 
is  already  a financial  center  for  that  territory  with  well  de- 
veloped lines  of  credit  outstanding.  At  the  same  time,  it  should 
be  remembered  that  under  the  new  act  there  is  nothing  what- 
ever to  prevent  individuals  from  borrowing  outside  of  their  own 
districts  or  to  prevent  member  banks  from  rediscounting  paper 
with  other  banks  in  other  districts  or  from  selling  or  buying  in 
the  open  market.  They  will  be  able  to  continue  their  present 
practices  in  that  regard.  Further,  the  existing  banking  system 
has  in  some  cases  tended  to  centralize  funds  under  an  artificial 
method,  and  so  to  build  up  balances  in  certain  points  in  a way  that 
they  would  not  naturally  have  developed.  It  is,  therefore,  not  abso- 
lutely essential,  or  always  possible,  in  laying  out  the  districts, 
to  pay  heed  to  the  existing  practices  on  the  part  of  given  banks 
in  borrowing  through  or  from  the  banks  of  a specified  city. 
In  some  cases,  it  may  be  necessary  to  place  such  borrowing 
banks  or  individuals  in  a district  which  will  center  at  a point 
not  heretofore  regarded  as  the  financial  metropolis  of  the  region. 
It  maj  be  generally  said  that  the  borrowing  habits  of  the  com- 
munity should  be  regarded  as  fully  as  possible,  in  all  cases  where 
such  regard  does  not  run  counter  to  other  more  forcible  or  con- 
trolling considerations.  The  testimony  throws  much  valuable 
light  upon  these  borrowing  habits,  and  is  of  material  assistance 
in  determining  the  limits  to  be  assigned  certain  districts. 

QUESTION  OF  A LARGE  BANK  OR  BANKS. 

Inspection  of  the  records  and  testimony  filed  at  the  various 
hearings  of  the  organization  committee  shows  that  in  several 
places  local  bankers  advocated  the  establishment  of  a very  large 
bank.  This  was  not  in  all  cases  because  of  the  desire  for  an 
extremely  high  capitalization,  but  was  in  not  a few,  the  outgrowth 
of  a feeling  that  the  city  where  the  bank  was  to  be  located  was 
entitled  to  a certain  territory  which  was  regarded  as  naturally  de- 
pendent upon  or  ancillary  to  it.  Thus  pleas  were  made  for  a 
bank  with  a very  large  capital  or  a large  territory,  or  both,  at 


9 


New  York  City,  Chicago  and  St.  Louis.  At  other  places  requests 
for  large  territories  were  filed,  but  in  many  such  cases  the  re- 
quests were  due  to  the  converse  consideration, — the  necessity  of 
including  a sufficiently  large  territory  to  supply  the  banking 
capital  requisite  upon  the  percentage  basis  prescribed  by  the  act, 
to  furnish  the  necessary  reserve  bank  capitalization.  Some  anal- 
ysis may  now  properly  be  made  of  the  two  points  of  view  thus 
offered. 

Those  who  demanded  the  organization  of  a large  bank  on  the 
ground  that  such  a bank  was  necessary  in  order  to  supply  the 
necessities  of  the  borrowing'  community  dependent  upon  such 
bank  were  manifestly  in  error,  inasmuch  as  they  assumed  that  the 
bank  in  question  was  to  be  primarily  dependent  upon  its  capital- 
ization for  the  means  of  supporting  its  discounts.  Such  is  far 
from  being  the  case.  The  act  itself  prescribes  that  the  banks 
shall  be  provided  shortly  after  their  organization,  not  only  with 
paid  in  capital,  but  also  with  very  large  sums  in  deposited  re- 
serves representing  the  reserve  funds  of  member  banks.  These 
both  can  and  should  be  (as  they  were  intended  to  be)  available 
for  use  as  reserve  bank  loaning  resources.  In  addition  the  gov- 
ernment deposits  to  be  made  with  the  banks  will  furnish  further 
means  of  supporting  credits.  The  capital  will  be  simply  an  extra 
or  added  strength  to  the  banks.  If  it  be  contended  that  the  bank  of 
any  given  district  is  not  large  enough  to  meet  the  needs  of  the 
community  the  criticism  really  amounts  to  a statement  that  the 
amount  of  the  reserves  required  to  be  deposited  is  not  sufficient. 
This  difficulty,  if  it  existed,  could  be  overcome  by  the  banks  which 
are  jointly  stockholders  in  the  reserve  bank,  by  simply  depositing 
more  of  their  funds  with  the  reserve  institution.  If  necessary,  it 
will  have  to  be  corrected  by  enforcing  a requirement  that  a larger 
percentage  of  reserves  shall  be  deposited  with  the  reserve  banks. 
Merely  to  extend  the  area  included  within  the  territory  belong- 
ing to  a reserve  bank  would  not  help,  because  such  extension 
would  simply  enlarge  the  area  without  enlarging  the  proportion  of 
the  capitalization  of  the  bank  to  that  of  the  member  banks.  In 
other  words,  as  fast  as  the  area  increased  and  the  capitalization 
with  it,  just  so  fast  would  the  amount  of  demand  or  strain  like- 
ly to  be  brought  to  bear  upon  the  reserve  bank  be  increased  or 
extended.  This  means  that  no  purpose  whatever  in  the  direction 
of  strengthening  the  reserve  banks  is  attained  by  enlarging  the 
area  over  which  they  preside,  assuming  that  a sufficient  area 
has  been  included  to  give  them  a reasonable  degree  of  capitaliza- 
tion at  the  start. 

Secondly,  the  statement  that  a very  large  capitalization  is  nec- 
essary in  order  to  inspire  respect  either  abroad  or  elsewhere  ignores 
not  only  the  fact  that  the  real  strength  of  the  banks  lies  in 
their  holdings  of  reserve  funds  as  just  set  forth,  but  also  ignores 
the  fact  that  the  reserve  system  will  undoubtedly  be  viewed  as 
a unit  by  foreign  countries  as  well  as  by  domestic  interests 
There  is,  therefore,  no  argument  whatever  on  the  side  of  those 


10 


who  demand  that  an  exceptionally  large  banking  capital  shall 
be  assigned  to  some  one  or  more  of  the  new  institutions.  The 
contentions  put  forward  in  this  connection  fail  to  recognize 
the  united  character  of  the  system  and  the  fact  that  in  case  of 
necessity  the  reserve  board  has  power  to  require  any  one  of  the 
reserve  banks  to  come  to  the  aid  of  any  one  or  more  of  the 
others. 

AVERAGE  CAPITALIZATION. 

An  estimate  of  the  probable  capitalization  of  the  Federal  banks 
as  a whole,  assuming  that  only  the  national  banks  enter  the 
system  at  the  start  and  that  practically  all  of  them  do  so,  or 
(what  comes  to  the  same  thing),  that  enough  state  banks  enter 
to  make  up  for  any  withdrawals  of  national  banks,  would  give 
a total  capitalization  of  about  $107,000,000.  The  Federal  Re- 
serve Act  prescribes  that  the  number  of  banks  to  be  established 
shall  be  not  less  than  eight  or  more  than  twelve.  This  means 
that  the  average  capitalization  of  the  reserve  banks  shall  be  not 
more  than  one-eighth  of  $107,000,000,  or  $13,350,000,  and  not 
less  than  one-twelfth  of  $107,000,000,  or  $9,000,000,  in  round  num- 
bers. There  is  nothing  in  the  act  to  indicate  a desire  or  in- 
tent on  the  part  of  its  framers  that  none  of  the  banks  should  be 
materially  larger  than  the  others,  but  on  the  contrary  the  act 
has  specifically  left  a large  latitude  to  those  engaged  in  laying 
out  the  country  into  districts  in  order  that  they  may  exercise 
their  best  judgment  in  apportioning  the  banking  capital  among 
such  districts.  It  is,  however,  obviously  true  that  since  the  act 
requires  that  no  reserve  bank  shall  have  a smaller  capital  than 
$4,000,000,  and  since  the  whole  tenor  of  the  law  and  of  the 
debate  on  it  was  against  the  creation  of  one  overshadowing  in- 
stitution, the  framers  of  the  act  did  intend  that  there  should  be 
no  marked  or  extreme  disparity  between  the  capitalization  of  the 
several  banks.  Inasmuch  as  the  minimum  capitalization  and 
the  number  of  banks  is  fixed,  it  is  evident  that  if  eight  institu- 
tions were  to  be  established  on  the  basis  already  indicated,  the 

maximum  size  which  could  be  given  to  any  one  of  them  and 

yet  comply  with  the  law  would  be  $79,000,000,  while  if  twelve 
institutions  were  to  be  established  the  maximum  size  thus  assign- 
able would  be  $63,000,000.  To  these  limits  the  organizers  of  the 
act  could  go  without  violating  the  letter  of  the  law.  Such  a 
variation  in  size  of  the  banks  would,  however,  be  a manifest  vio- 
lation of  its  spirit.  The  same  is  true  of  the  proposal  to  estab- 
lish three  or  four  very  large  banks  made  by  the  bankers  at  the 

hearings.  This  latter  plan  in  turn  repeats  the  proposal  which  was 

urged  during  the  debates  on  the  bill  that  there  should  be  not 
to  exceed  four  reserve  institutions.  That  plan  was  an  alterna- 
tive to  the  plan  of  a single  central  institution  and  was  rejected 
in  the  same  way  as  the  central  plan.  If  the  recommendations 
of  the  bankers  of  New  York,  Chicago,  and  St.  Louis  were  to  be 
accepted,  the  country  would  be  practically  divided  up  between 
these  centers  except  in  so  far  as  a fringe  had  to  be  left  to  comply 


11 


with  the  requirements  of  the  law.  Worked  out  in  practice  and 
harmonized  with  one  another  to  some  extent,  the  suggestions 
of  the  bankers  in  these  three  cities  would  lead  to  the  establish- 
ment of  eight  banks  of  which  three  should  be  very  large  and 
five  small.  If  the  five  were  kept  down  to  the  minimum  capital- 
ization of  $4,000,000,  there  would  be  left  $87,000,000  for  division 
between  the  three  centers,  or  an  average  of  $29,000,000  as  the 
capitalization  basis  for  the  reserve  bank  in  each  place.  It  is  not 
believed  that  this  would  be  a compliance  with  the  law  or  that 
the  bankers  in  those  places  submitted  any  evidence  showing  that 
such  a capitalization  should  be  assigned. 

Assuming  this  reasoning  to  be  accepted,  a first  approximation 
towards  a plan  for  laying  out  the  proposed  districts  can  be  ar- 
rived at  as  follows: 

The  largest  of  the  reserve  banks  to  be  located  at  the  princi- 
pal financial  centers  of  the  country  should  have  a capitalization 
whose  minimum  limits  should  be  in  the  neighborhood  of  $9,000,000, 
or  less,  and  whose  maximum  limit  should  certainly  not  exceed 
$28,000,000,  and  should  preferably  be  very  much  smaller  than  that 
amount, — as  much  smaller  as  the  convenience  and  customary 
course  of  business  will  permit. 

FUNDAMENTAL  PRINCIPLES. 

The  fundamental  principles  of  a positive  nature  upon  which 
the  process  of  districting  should  be  carried  out  may  now  be  laid 
down. 

(a)  The  act  calls  for  not  less  than  eight  or  more  than  twelve 
districts:  it  leaves  the  choice  of  the  number  within  these  limits 
entirely  open  and  to  be  decided  without  prejudice. 

(b)  The  plain  intent  of  the  framers  of  the  act  was  to  es- 
tablish a number  of  different  and  independent  institutions,  each 
sufficiently  strong  to  care  for  itself  without  the  necessity  in  normal 
times  of  depending  upon  any  other. 

(c)  The  institutions  to  be  created  should,  therefore,  be  reas- 
onably similar  to  one  another  in  size,  without  attempting  to 
bring  about  any  artificial  similarity,  and  should  be  located  at 
such  points  as  will  most  nearly  convenience  the  business  of 
the  country. 

(d)  The  creation  of  any  one  large  bank  should  be  avoided, 
meaning  by  large  bank,  a bank  so  preponderating  in  importance 
as  to  make  it  ipso  facto  the  most  conspicuous  and  by  far  the 
strongest  element  in  the  system ; while  at  the  same  time  it 
should  be  sought  to  avoid  the  creation  of  two  distinct  classes 
of  banks,  one  consisting  of  large,  powerful  institutions,  the  other 
consisting  of  smaller  and  weaker  institutions  likely  to  become 
dependent  upon  the  neighboring  and  stronger  banks. 

(e)  While  the  law  requires  that  a minimum  capital  of 
$4,000,000  shall  be  present  in  each  and  every  reserve  district  and 
while  this  requirement  must  be  observed,  there  is  no  harm  in 
approaching  closely  to  it  or  even  in  going  below  this  limit  so  far 


12 


as  the  banks  are  concerned,  making  up  the  deficiency  by  private 
or  Government  subscription,  if  it  be  true  that  within  a reason, 
ably  near  future  the  district  will  probably  advance  in  wealth 
and  capital  so  as  to  make  the  establishment  of  such  a bank 
desirable. 

(f)  Special  study  should  be  given  both  in  establishing  the 
districts  and  in  establishing  the  point  in  each  district  where  the 
headquarters  bank  is  to  be  situated,  to  the  facilities  and  speed  of 
transportation  both  between  such  point  and  those  at  which 
other  headquarters  banks  are  located,  and  between  such  head- 
quarters point  and  the  outlying  portions  of  the  district  itself. 

GENERAL  PROBLEM  OF  DISTRICTING. 

A general  survey  of  the  country  for  the  purpose  of  districting 
clearly  shows  that  several  distinct  problems  are  offered  in  con- 
nection with  the  division  of  the  country  under  the  Federal  Re- 
serve Act.  These  problems  present  distinct  phases  and  vary 
from  region  to  region.  While  it  will  not  be  possible  in  making  as- 
signments to  proceed  in  a consecutive  way,  geographically  speak- 
ing, in  the  division  of  the  country,  it  will  be  well  to  let  the  work 
proceed  so  far  as  practicable  and  convenient  by  grand  divisions  or 
regions,  recognizing  the  distinct  character  of  the  soil,  industry,  dis- 
tribution of  population,  and  transportation  systems  of  the  several 
portions  of  the  Continent. 

A limitation  to  be  imposed  upon  this  general  principle  of  pro- 
cedure as  well  as  a consideration  which  will  aid  in  developing 
the  different  districts  is  found  in  the  fact  that  to  a certain  ex- 
tent the  sites  of  reserve  banks  must  be  regarded  as  practically 
predetermined,  as  in  the  case  of  New  York,  Chicago,  and  St.  Louis, 
the  present  central  reserve  cities.  Wherever  that  is  true,  for  the 
reasons  already  generally  set  forth  in  the  foregoing  analysis,  it  is 
possible  to  assign  certain  territory  as  definitely  belonging  to  the 
banks  to  be  placed  in  the  cities  aforesaid.  Thereby  certain  definite 
limitations  necessarily  to  be  observed  in  connection  with  the  subse- 
quent outlining  of  the  districts  are  laid  down. 

DIRECTION  OF  BUSINESS. 

In  the  division  to  be  mapped  out  effort  must  be  made  to 
recognize  the  fact  that  business  at  the  present  time  has  a north- 
ern and  easterly  trend.  In  most  cases  the  headquarters  of  given 
districts  will  be  so  located  as  to  recognize  this  fact  and  to  give 
the  fullest  possible  scope  to  existing  habits  and  methods,  doing 
as  little  violence  as  possible  to  prevailing  customs  and  wherever 
practicable  adopting  existing  banking  relationships  as  the  basis 
for  the  new  organization,  particularly  in  its  clearing  phases. 
At  the  same  time  there  should  be  no  hesitation  in  making  changes 
wherever  it  is  believed  that  the  existing  banking  practice  is  purely 
artificial  and  where,  therefore,  a change  will  increase  convenience 
instead  of  diminishing  it.  Wherever  such  a change  becomes 
necessary  the  effort  should  be  to  lay  out  the  boundaries  of  the 
district  in  such  a manner  that  both  from  the  transportation 


13 


standpoint,  as  well  as  from  the  point  of  view  of  business  and 
manufacturing  growth  the  new  banking  center  will  develop  in 
harmony  with  the  general  commercial  interests  of  the  district 
where  it  is  situated. 

QUESTION  OF  RESERVE  HOLDINGS. 

Before  effecting  the  districting  as  a finality  it  would  be  well 
to  ascertain  with  accuracy  the  reserve  affiliations  of  each  and  every 
bank  in  the  system  by  obtaining  from  them  the  facts  in  the 
case  as  already  suggested  in  a memorandum  filed  with  the  Or- 
ganization Committee  on  January  8,  1914.  If  each  bank  has 
been  asked  to  indicate  its  choice  of  a district  or  city  with  which 
to  be  associated  these  data  should  be  considered  in  conjunc- 
tion with  the  figures  for  reserves. 

It  should  be  understood,  however,  that  the  data,  whatever 
they  may  be  on  this  subject  will  not  affect  in  any  very  general 
manner  the  outlines  of  the  districts.  On  the  contrary,  those 
general  outlines  must  be  determined  by  broader  considerations  and 
it  may  be  true  in  many  cases  that  there  would  be  reasons  for 
assigning  a bank  to  a given  district  notwithstanding  that  its 
affiliations  would  place  it  elsewhere  if  nothing  else  were  con- 
sidered. The  single  fact  that,  as  is  well  known,  and  as  the  re- 
ports of  the  Comptroller  show,  a large  number  of  banks  have 
their  reserve  agents  in  New  York,  Chicago  or  St.  Louis  rather 
than  in  a reserve  city  near  home  is  due  to  an  artificial  condition 
which  has  existed  heretofore  and  is  not  a circumstance  to  which 
any  particular  weight  should  be  assigned  in  making  up  the  dis- 
tricts under  the  new  system.  In  a less  degree  and  with  very 
much  greater  limitation,  the  same  may  be  said  of  the  facts  as 
to  reserve  holdings  in  the  smaller  reserve  cities. 

Something  needs  to  be  said  concerning  the  general  assignment 
of  banks  to  districts  in  different  parts  of  the  country.  A survey  will 
indicate  that  there  must  be  assigned  to  the  northern  and  eastern 
part  of  the  country  an  apparently  disproportionately  large  number 
of  districts.  In  the  effort  to  alter  this  plan  of  districting  in  such  a 
way  as  to  give  to  the  “south”  or  to  the  “west”  a larger  number 
of  districts  on  the  ground  that  there  should  be  a certain  sec- 
tional equality  of  distribution,  the  difficulty  of  irregular  distribu- 
tion of  population  and  capital  will  inevitably  be  encountered. 
Only  two  remedies  could  be  applied  in  connection  therewith;  (a) 
the  placing  of  the  headquarters  of  given  districts  in  that  part 
of  the  country  which  was  supposed  to  have  been  slighted — in 
those  districts  where  the  territory  included  is  so  great  as  to  oc- 
cupy parts  of  two  general  sections  of  the  country,  or  (b)  to  read- 
just the  disti’icts  themselves  so  as  to  divide  up  great  regions  in 
a different  way  and  make  given  parts  of  the  country  independent 
or  self  controlling.  Some  have  suggested  that  the  districts  on 
the  Atlantic  Coast  be  elongated  while  compensating  capital  is 
obtained  by  carrying  the  extreme  southern  states  such  as  Miss- 
issippi, Alabama  and  Georgia  into  a district  which  should  be 


14 


allowed  to  run  high  up  the  Mississippi  River  along-  the  eastern 
bank  of  that  stream,  extending-  over  the  southern  part  of  what  we 
have  called  the  Great  Lakes  district.  While  this  plan  might  be 
feasible,  it  is  not  believed  that  it  would  be  desirable.  The  effect  of 
it  would  be  to  establish  too  great  a north  and  south  extent  of 
territory.  The  same  objection  would  hold  good  of  any  district 
embracing-  the  far  southern  states  with  the  southern  portion  of 
the  middle  west.  Moreover  the  districts  thus  created  would  be 
decidedly  inferior  in  transportation  as  well  as  in  quick  clearing 
capacity  to  those  which  have  been  tentatively  suggested  above. 
It  would  seem  that  there  is  but  one  argument  seriously  to  be 
considered  in  favor  of  such  a plan — namely  the  view  that  any 
district  established  should,  if  possible,  contain  a variety  of  differ- 
ent interests  which  will  make  seasonal  demands  for  loans  at  dif- 
ferent times.  This  is  the  argument  for  so-called  “shoe  string” 
districts  that  has  been  put  forward  from  time  to  time,  or  as 
others  have  expressed  it,  it  is  a demand  for  the  inclusion  of  a 
lending  and  a borrowing  area  within  each  district. 

QUESTION  OF  LENDING  AND  BORROWING  AREAS. 

As  regards  this  argument,  it  should  be  noted  that  even  if 
it  be  allowed  full  scope  the  idea  is  one  which  cannot  be  fully 
worked  out  throughout  the  whole  process  of  districting.  The  New 
York  and  Chicago  districts  for  example  will  almost  necessarily 
be  debarred  from  making  use  of  it,  while  the  same  is  true  of 
sundry  of  the  other  districts  in  greater  or  less  degree.  This 
would  not  be  a good  argument  against  employing  the  plan  so  far 
as  practicable  if  it  should  be  entitled  to  serious  theoretical  con- 
siderations. The  question  must  be  considered,  therefore,  how  far 
such  serious  theoretical  consideration  may  be  granted  to  it.  Under 
existing  conditions  the  idea  is  one  which  undoubtedly  should  have 
large  weight,  inasmuch  as  to-day  the  banks  of  the  country  are 
habitually  compelled  to  shift  currency  back  and  forth,  relying 
upon  one  another  for  seasonal  aid  through  the  redistribution 
of  their  fluid  resources.  If  conditions  were  to  be  the  same 
under  the  new  system  as  at  present  it  would  be  necessary  to 
provide  for  this  state  of  things.  However,  the  very  essence  of 
the  new  plan  is  intended  to  meet  the  condition  which  in  the  past 
has  caused  chief  trouble  by  eliminating  this  necessity  of  inter- 
dependence between  districts.  The  Federal  Reserve  Act  will  pre- 
sumably afford  a means  of  making  each  district  self-supporting  in 
a credit  way  so  that  assuming  the  plan  to  work  as  it  is  expected 
to  work  the  need  for  mutual  seasonal  aid  and  shipments  of 
currency  will  be  minimized. 

CHOICE  OF  CHIEF  CITIES. 

In  choosing  the  chief  city  of  each  district — that  is  to  say  the 
city  in  which  the  headquarters  bank  is  to  be  located — two  main 
considerations  are  to  be  borne  in  mind: 

(a)  Existing  banking  relationships  and  associations. 


15 


(b)  Geographical  and  transportation  considerations,  govern- 
ing the  relative  ease  of  access  of  different  parts  of  the  district. 

In  some  cases  it  will  be  found  that  these  two  sets  of  consider- 
ations cannot  be  harmonized;  in  others  that  a city  can  be  selected 
that  will  satisfy  both. 

Wherever  possible  the  preference  should  be  given  to  a city 
which  has  acquired  a distinct  leadership  in  the  matter  of  business 
and  with  which  the  banks  within  the  district  are  in  the  habit  of 
dealing.  Where  the  choice  between  two  cities  would  otherwise 
be  difficult  to  make  on  account  of  practical  equality  in  the  ex- 
tent and  importance  of  their  commercial  relationships,  the  city 
to  be  chosen  should  be  that  which  has  the  advantage  in  ease  of 
communication.  This  is  fundamentally  desirable  because  of  the 
necessities  of  the  clearing  process  and  the  advantage  to  be  gained 
from  having  all  parts  of  the  district  within  easy  reach  of  head- 
quarters. 

LOCATION  OF  BRANCHES. 

The  problem  of  branches  is  likely  to  be  decidedly  serious  from 
the  very  beginning.  It  will  be  found  upon  a close  examination 
of  the  subject  that  the  establishment  of  branches  will  be  prac- 
tically out  of  the  question  so  far  as  any  useful  purpose  is  con- 
cerned, unless  a distinct  territory  is  assigned  to  each  branch. 
This  involves  the  question  whether  a district  shall  be  broken  up 
among  a number  of  branches  with  the  headquarters  bank  simply 
presiding  over  the  series,  or  whether  a district  will  be  assigned 
to  the  headquarters  bank  just  as  it  is  assigned  to  each  branch. 
In  either  case  the  problem  of  subdistricting  each  district  is 
raised.  Some  of  the  testimony  already  available,  obtained  during 
the  hearings  before  the  reserve  bank  Organization  Committee  has  a 
valuable  bearing  upon  this  subject.  At  some  points  it  would  re- 
quire to  be  eked  out  with  other  information.  There  is  however, 
no  purpose  to  be  served  in  attempting  a very  careful  process  of 
subdistricting  until  the  districts  themselves  have  been  organized 
so  that  what  is  said  in  this  discussion  has  been  confined  entirely  to 
the  districts  themselves  without  effort  at  the  detailed  study  of  the 
subdistrict  question. 

One  further  point  should  be  carefully  noted  in  this  connection. 
There  are  two  ways  in  which  the  branches  may  be  established. 
They  may  be  created  either  (a)  as  mere  local  boards  of  directors 
charged  with  the  duty  of  passing  upon  paper  and  perhaps  car- 
rying on  a clearing  process  for  the  subdistrict,  but  without  any 
stock  of  cash,  without  a banking  house  and  without  the  power  to 
make  loans  directly,  merely  transmitting  the  approved  paper  to 
the  headquarters  bank;  or  (b)  as  full-fledged  branch  banking  in- 
stitutions with  a banking  house  and  fixtures,  a stock  of  coin, 
and  a full  staff  of  employees.  Care  and  judgment  should 
be  exercised  even  in  establishing  branches  on  the  first  named 
basis  and  they  should  not  be  created  unless  they  are  actually 
needed  for  immediate  purposes.  Even  in  the  latter  event,  there 


16 


should  be  no  undue  haste  in  creating-  them,  but  the  headquarters 
banks  should  be  allowed  to  get  a satisfactory  start  before  the 
complicating  elements  involved  in  branch  organization  are  allowed 
to  enter  into  the  problem.  There  will,  however,  be  no  harm  in 
announcing-  at  the  time  of  the  districting  the  probable  names  of 
cities  regarded  as  suitable  sites  for  branch  banks,  leaving  the 
decision  to  be  revised  later  if  necessary,  and  permitting  the 
question  of  branch  organization  to  remain  in  the  background  until 
such  time  as  the  actual  establishment  of  the  branches  is  re- 
solved upon,  when  the  type  of  such  organization  to  be  adopted 
may  be  indicated.* 

SELECTION  OF  DIRECTORS. 

The  choice  of  directors  for  the  new  banks  is  provided  for  in 
Section  4 of  the  Federal  Reserve  Act.  This  section  contains  much 
matter  relating  to  the  qualifications  of  directors,  methods  of 
removal,  and  other  topics  not  germane  to  the  present  discussion. 
These  phases  of  the  matter  are  therefore  properly  omitted  from 
the  present  treatment.  The  portion  of  Section  4 which  is  consid- 
ered to  be  significant  in  the  present  connection  is  as  follows: 

At  a regularly  called  meeting  of  the  board  of  direc- 
tors of  each  member  bank  in  the  district  it  shall  elect 
by  ballot  a district  reserve  elector  and  shall  certify  his 
name  to  the  chairman  of  the  board  of  directors  of  the 
Federal  reserve  bank  of  the  district.  The  chairman 
shall  make  lists  of  the  district  reserve  electors  thus 
named  by  banks  in  each  of  the  aforesaid  three  groups 
and  shall  transmit  one  list  to  each  elector  in  each 
group. 

Each  member  bank  shall  be  permitted  to  nominate 
to  the  chairman  one  candidate  for  director  of  class 
A,  and  one  candidate  for  director  of  class  B. 

The  candidates  so  nominated  shall  be  listed  by  the 
chairman,  indicating  by  whom  nominated,  and  a copy 
of  said  list  shall,  within  fifteen  days  after  its  comple- 
tion, be  furnished  by  the  chairman  to  each  elector. 

Every  elector  shall,  within  fifteen  days  after  the 
receipt  of  the  said  list,  certify  to  the  chairman  his  first, 
second,  and  other  choices  of  a director  of  class  A and 
class  B,  respectively,  upon  a preferential  ballot,  on  a 
form  furnished  by  the  chairman  of  the  board  of  direc- 
tors of  the  Federal  reserve  bank  of  the  district.  Each 


*The  foregoing  section  of  this  report,  accompanied  by  a detailed 
statistical  and  geographical  analysis  indicating  the  sites  for  Re- 
serve Banks  and  the  limits  of  the  districts  pertaining  thereto,  upon 
a basis  of  eight,  of  nine,  of  ten,  of  eleven,  and  of  twelve  institu- 
tions, was  submitted  to  the  Organization  Committee  early  in  March, 
1914.  The  Committee  having  since  that  date  established  the  dis- 
tricts and  indicated  the  headquarters  of  the  banks,  the  detailed 
analyses  are  here  omitted. 


17 


elector  shall  make  a cross  opposite  the  name  of  the 
first,  second,  and  other  choices  for  a director  of  class  A 
and  for  a director  of  class  B,  but  shall  not  vote  more 
than  one  choice  for  any  one  candidate. 

Any  candidate  having  a majority  of  all  votes  cast 
in  the  column  of  first  choice  shall  be  declared  elected. 

If  no  candidate  have  a majority  of  all  the  votes  in  the 
first  column,  then  there  shall  be  added  together  the 
votes  cast  by  the  electors  for  such  candidates  in  the 
second  column  and  the  votes  cast  for  the  several  candi- 
dates in  the  first  column.  If  any  candidate  then  have  a 
majority  of  the  electors  voting,  by  adding  together  the 
first  and  second  choices,  he  shall  be  declared  elected. 

If  no  candidate  have  a majority  of  electors  voting  when 
the  first  and  second  choices  shall  have  been  added,  then 
the  votes  cast  in  the  third  column  for  other  choices 
shall  be  added  together  in  like  manner,  and  the  can- 
didate then  having  the  highest  number  of  votes  shall 
be  declared  elected.  An  immediate  report  of  election 
shall  be  declared. 

The  prescriptions  of  this  language  unmistakably  call  for  the  se- 
lection of  two  and  only  two  directors,  one  a banker  and  one  a 
business  man,  in  each  of  the  three  banking  groups;  ballots  to  be 
cast  upon  a basis  of  preferential  voting  which  shall  result  in  the 
designation  of  different  individuals  as  first,  second,  and  third  choice 
for  each  place  and  upon  each  ballot.  This  being  considered  so 
clear  as  to  be  open  to  no  debate  it  has  been  deemed  best  therefore 
to  present  merely  a form  of  ballot  designed  to  comply  with  the 
terms  of  the  act  in  regard  to  the  choice  of  directors.  In  order  fully 
to  carry  out  the  provisions  of  the  law  with  respect  to  the  election 
of  directors  there  have  been  drafted  a series  of  forms  for  use  in 
balloting  for  such  directors  under  the  terms  of  the  legislation.  These 
forms  have  been  shaped  with  a view  to  fulfilling  the  requirements 
of  the  act  in  general,  and  particularly  of  the  sections  already  quoted 
with  respect  to  the  methods  of  indicating  choices  of  directors.  The 
forms  suggested  will  be  found  in  the  accompanying  collection  of 
draft  forms  herewith  presented  as  an  accompaniment  to  Appen- 
dix I. 

Upon  the  election  of  the  directors,  unless  the  work  has  been 
undertaken  prior  to  that  time  in  accordance  with  the  authority 
bestowed  by  the  act  upon  the  Organization  Committee  to  exercise 
the  functions  of  the  chairman  of  the  board  of  directors,  the  pay- 
ment of  the  specified  subscriptions  to  stock  will  be  in  order,  such 
payments  to  be  made  in  accordance  with  the  provisions  of  the  act 
contained  in  section  whereby  the  dates  for  the  transmission  of  each 
instalment  of  the  stock  payments  is  provided  for.  A form  of  stock 
subscription  ledger  for  the  recording  of  such  payments  has  been 
prepared.  The  chief  points  in  connection  with  it  are  seen  in  the 
necessity  of  providing  for  the  specified  percentages  of  payment,  the 


18 


change  in  the  amount  due  from  any  bank  as  a result  of  changes  in 
its  capital  or  surplus  or  both,  and  the  possibility  that  two  classes 
of  stock,  the  one  issuable  to  member  banks  only,  and  in  that  event 
non-transferable,  the  other  issuable  to  individuals  and  assignable 
and  transferable,  may  be  provided  for  either  at  the  beginning  or 
at  some  time  in  the  future.  A separate  stock  subscription  ledger 
is  provided  for  use  in  the  case  of  individual  subscriptions,  if  any, 
while  the  ledger  intended  for  the  use  of  individual  banks  is  ruled 
to  permit  of  additions  to  or  deductions  from  stock  subscriptions  re- 
sulting from  changes  in  the  capital  of  the  several  banks  necessitating 
corresponding'  changes  in  the  amount  of  the  subscription  to  be 
exacted  of  them.  The  forms  presented  herewith  in  the  collection 
accompanying  Appendix  I for  use  in  the  recording  of  stock  subscrip- 
tions are,  beyond  the  few  points  already  noted,  self-explanatory. 

There  have  also  been  prepared  forms  for  use  in  receipting  for 
stock  subscriptions.  Two  such  forms  are  presented,  the  one  in- 
tended to  be  a continuous  record  which  would  be  transmitted  by 
the  bank  making  the  subscription  to  the  body  receiving  the  same, 
the  amount  thereof  to  be  recorded  upon  the  form  and  the  latter 
returned  to  the  subscribing  bank  in  the  case  of  each  instalment, 
while  the  second  form  is  scrip  intended  for  use  in  place  of  the  con- 
tinuous record  already  referred  to,  should  that  method  of  receipting 
be  preferred.  In  case  the  scrip  type  receipt  should  be  used,  a sep- 
arate and  independent  receipt  would  be  transmitted  for  each  instal- 
ment. It  is  believed  that  the  scrip  receipt  will  probably  be  pre- 
ferable to  the  continuous  record,  owing  to  its  greater  convenience. 


19 


Part  II. 

In  dealing-  with  the  general  question  of  the  organization  of  the 
reserve  system  after  the  necessary  structure  has  been  set  up  by 
the  appointment  of  the  boards  of  directors  of  the  Federal  reserve 
banks  and  by  the  appointment  of  the  Federal  Reserve  Board  itself 
it  is  deemed  best  to  recognize  several  distinct  elements  as  follows: 

1.  The  organization  and  management  of  a typical  Federal  re- 
serve bank  whose  operations  are  supposed  to  be  representative  of 
and  practically  uniform  with  those  of  every  other. 

2.  The  organization  of  the  office  of  the  Federal  reserve  agent 
stationed  at  each  reserve  bank,  and  the  duties  of  such  agent. 

3.  The  organization  of  the  Federal  Reserve  Board. 

4.  The  conduct  of  business  of  Federal  reserve  banks. 

5.  The  relations  between  Federal  reserve  banks  themselves  and 
between  each  Federal  reserve  bank  and  its  member  banks. 

6.  The  relations  between  the  Federal  reserve  system  and  out- 
side banks. 

7.  The  establishment  of  branches  at  home  and  abroad  and  the 
relations  between  such  branches  and  the  “parent”  banks  to  which 
they  are  attached. 

It  will  not  be  feasible,  for  reasons  of  convenience  which  -will 
later  appear,  to  discuss  these  topics  strictly  in  the  order  in  which 
they  are  here  presented,  but  each  of  the  general  discussions  thus 
indicated  will  be  dealt  with  in  the  course  of  the  report. 

A beginning  will  be  made  by  outlining  the  proposed  type  of 
organization  for  a Federal  reserve  bank.  The  reasons  for  the 
precise  form  of  organization  suggested  will  become  apparent  as  the 
treatment  proceeds. 

ORGANIZATION  OF  BANKS. 

In  dealing  with  the  actual  organization  of  the  proposed  banks 
two  leading  questions  are  presented: 

1.  The  systematic  recording  of  their  doings,  including  full  pro- 
vision for  accounting  and  internal  regulation. 

2.  The  officering  of  the  several  institutions,  and  the  general 
relationship  between  their  organization  and  that  of  the  Federal 
Reserve  Board. 

To  some  extent  these  two  phases  of  the  subject  must  be  treated 
together,  but  the  principal  features  of  each  branch  of  the  questioii 
of  organization  can  be  independently  disposed  of.  Attention  will 
first  be  given  to  the  question  of  the  routine  conduct  of  business  in 
the  institutions. 

In  organizing  the  Federal  reserve  bank  in  each  of  the  districts 
set  apart  by  the  Organization  Committee,  it  will  be  necessary  first 
of  all  to  determine  upon  the  general  type  of  organization  to  be 
employed  and  to  formulate  a specific  plan  of  procedure  in  accord- 
ance therewith.  The  Federal  Reserve  act  makes  no  effort  to  pre- 
scribe the  details  of  organization,  but  leaves  them  to  be  settled  by 


20 


the  boards  of  directors,  subject  to  the  general  requirements  of  the 
methods,  and  restrictions  definitely  set  forth  in  the  national  banking 
act  are  to  be  adhered  to. 

ADMINISTRATION. 

It  is  believed,  however,  that  so  far  as  practicable,  the  adoption 
of  a uniform  system  of  organization  which  shall  prevail  throughout 
the  whole  system  of  banks  as  nearly  as  conditions  will  permit,  is 
much  to  be  preferred  to  a plan  which  would  allow  the  banks  to 
adopt  a variety  of  different  methods  of  organization,  according  to 
circumstances.  The  points  which  have  been  deemed,  on  the  whole, 
practically  essential  in  connection  with  the  organization  are  brought 
out  in  the  latter  portions  of  this  report  in  connection  with  the  treat- 
ment of  branches,  accounting,  and  other  subjects,  but  at  this  point 
it  is  considered  desirable  to  sketch  their  main  outlines  for  the  sake 
of  clearness  by  way  of  introducing  the  subject.  In  general,  the 
following  requirements  must,  it  is  thought,  be  complied  with: 

(a.)  Each  Federal  reserve  bank  should  have  a distinct  executive 
head  not  identical  with  the  Federal  reserve  agent,  even  in  those 
cases  where  the  reserve  agent  has  been  selected  in  a manner  en- 
tirely satisfactory  to  the  banking  community,  so  that  stockholders 
would  be  quite  willing  to  have  the  agent  act  as  the  executive  head 
of  the  bank.  Of  course  this  implies  that  in  no  case  should  the 
president  or  executive  head  chosen  by  the  stockholders  be  desig- 
nated by  the  Government  as  reserve  agent.  The  intent  of  the  act 
is  distinctly  opposed  to  any  such  fusion  of  functions,  the  agent 
being  intended  to  be  a Government  representative  and  spend  his 
time  in  furthering  the  interests  of  the  public  at  large — a position 
he  could  hardly  preserve  were  he  to  become  an  active  operating 
officer,  anxious  to  increase  profits  and  advance  given  private 
interests. 

(b.)  Each  Federal  reserve  bank  should  be  carefully  subdivided 
into  departments,  each  such  department  representing  a definite 
allotment  of  business,  the  divisions  being  those  which  correspond 
with  the  various  types  of  business  set  forth  by  the  Federal  Re- 
serve act. 

(c.)  Each  Federal  reserve  bank  should  be  so  organized  as  to  pro- 
vide for  a proper  check  upon  the  operations  of  the  member  banks 
and  for  a suitable  oversight  on  the  part  of  the  reserve  agent. 

(d.)  Each  Federal  reserve  bank  should  be  subject  to  specified 
internal  regulations  evolved  as  the  result  of  bank  experience,  which 
will  conduce  to  the  efficient  and  economical  conduct  of  its  affairs. 

(e.)  Suitable  provision  shall  be  made  in  each  bank  for  the  bond- 
ing of  employees  and  for  an  accurate  control  of  their  operations. 

An  organization  chart  is  presented  in  Portfolio  I for  the  graphic 
presentation  of  this  plan. 


21 


For  the  purpose  of  presenting-  a connected  view  of  the  plan 
of  organizing  the  banks,  it  has  been  deemed  be^t  to  formulate  a 
tentative  set  of  by-laws  for  a typical  Federal  reserve  bank,  such 
by-laws  to  be  varied  or  modified  in  detail  according  as  special  re- 
quirements on  the  part  of  the  different  institutions  might  demand. 
These  by-laws  will  be  first  presented  and  will  later  be  supplement- 
ed by  a detailed  sketch  of  practicable  accounting  systems. 

BY-LAWS 

of 

THE  FEDERAL  RESERVE  BANK 
of 


PREAMBLE. 

As  provided  in  its  Certificate  of  Organization,  dated  

the  name  of  this  bank  shall  be  The  Federal  Reserve  Bank  of 

and  it  shall  do  business  in  the  City  of State 


of and  serve  the  territory  known  as  Federal  Reserve 

District  It  was  duly  authorized  to  commence 


business  by  the  Comptroller  of  the  Currency,  under  date  of 

ARTICLE  I. 

Directors. 

Section  1.  Number  and  Quorum. — The  number  of  directors 
shall  be  nine.  A majority  of  the  directors  shall  constitute  a 
quorum. 

Section  2.  Classes. — The  board  of  directors,  as  provided  by  law 
divided  into  three  classes — A,  B,  and  C — shall,  at  its  initial  meeting, 
designate  one  member  of  each  class  whose  term  of  office  shall  ex- 
pire one  year  after  the  first  day  of  January  nearest  the  date  of 
such  initial  meeting;  in  like  manner,  one  whose  term  shall  expire 
in  two  years,  and  one  in  three  years.  Thereafter,  the  term  of  office 
of  each  director  shall  be  three  years. 

Section  3.  Vacancies. — Vacancies  shall  be  filled  and  successors 
elected  in  the  manner  provided  by  law. 

Section  4.  Meetings. — There  shall  be  a stated  meeting  of  the 

board  every at o’clock  A.  M.,  or,  if  that  day  be  a 

holiday,  on  the  first  preceding  day  not  a holiday. 

The  chairman  of  the  board  shall  be  empowered  to  call  a special 
meeting  at  any  time,  or  upon  the  written  request  of  any  three 
directors,  or  whenever  requested  so  to  do  by  the  president. 

Section  5.  Powers. — The  board  of  directors  shall,  subject  to  the 
approval  of  the  Federal  Reserve  Board,  fix  the  compensation  and 
define  the  duties  (other  than  those  herein  provided  for)  of  officers, 
clerks,  and  employees  of  the  bank.  It  shall  duly  provide  for  the 
expenses  of  the  Department  of  Federal  Reserve  Agent  and  for  the 
pro  rata  amount  of  expenses  of  the  Federal  Reserve  Board  and 
the  Federal  Advisory  Council. 

Section  6.  Order  of  Business. — The  following  shall  be  the  order 
of  business  at  each  regular  meeting  of  the  board: 


1.  Reading-  or  inspection  of  minutes  of  the  last  regular  meet- 
ing. 

2.  Report  of  the  president,  including-  information  concerning 
banking  and  business  conditions  in  the  district. 

3.  Report  of  the  secretary-treasurer,  including-  detailed  sum- 
mary of  all  business  transacted  since  last  regular  meeting  and 
statement  of  present  condition,  the  latter  to  include: 

(a.)  Statement  of  all  loans,  rediscounts,  investments  and 
purchases; 

(b. ) All  official  correspondence  received  from  Federal 
Reserve  Board; 

(c. ) Weekly  statement  of  condition  made  to  Federal  Re- 
serve Board; 

(d.)  Summary  of  condition  of  member  banks; 

(e. ) Minutes  of  meetings  of  boards  of  directors  of 
branches. 

4.  Committee  reports. 

5.  Unfinished  business. 

6.  Discount  policy  and  formulation  of  report  to  Federal  Re- 
serve Board  on  reasons  for  same. 

7.  New  business. 

ARTICLE  II. 

Executive  Committee. 

Section  1.  How  Constituted. — There  shall  be  an  executive  com- 
mittee consisting  of  the  president,  the  Federal  reserve  agent,  and 
one  director  of  class  A or  B.  Such  director  shall  be  elected  by  the 
board  to  serve  for  a period  not  to  exceed  one  month,  and  his  suc- 
cessors shall  be  chosen  in  rotation  until  each  member  of  classes  A 
and  B shall  have  served  or  shall  have  been  given  an  opportunity  to 
serve.  The  board  shall  elect  each  month  an  alternate  for  service 
on  the  executive  committee,  who  shall  be  authorized  to  act  in  the 
absence  or  disability  of  the  member  first  chosen. 

Section  3.  Powers — Subject  to  the  rules  and  regulations  of  the 
meetings  upon  call  of  the  ■ Chairman  and  shall  cause  to  be  kept 
minutes  of  all  such  meetings  held  by  it,  which  shall  be  read  and 
approved  by  members  of  the  board  at  the  next  succeeding  meeting 
of  the  board. 

Section  3.  Powers. — Subject  to  the  rules  and  regulations  of  the 
board  of  directors  and  of  the  Federal  Reserve  Board,  the  executive 
committee  shall  have  the  following  powers: 

1.  To  pass  upon  all  commercial  paper  submitted  for  discount, 

2.  To  initiate  open  market  transactions. 

3.  To  recommend  to  the  board  of  directors,  from  time  to 
time,  changes  in  the  discount  rates. 

4.  To  buy  and  sell  securities. 

5.  To  apply  and  provide  for  the  security  of  such  Federal  re- 
serve notes  as  may  be  necessary  for  the  general  requirements  of 
the  bank. 

6.  To  employ  clerks  and  other  subordinates,  to  define  their 
duties,  and  to  fix  their  compensation. 


23 


ARTICLE  III. 

Officers. 

Section  1.  The  officers  to  be  chosen  by  the  board  of  directors 
shall  be  a president,  a first  and  a second  vice-president,*  a sec- 
retary-treasurer, and  such  other  officers  as  the  board  may  from 
time  to  time  determine.  They  shall  hold  office  during  the  pleasure 
of  the  board.  Such  officers  shall,  so  far  as  may  be  practicable,  at- 
tend board  meetings. 

Section  2.  Chairman. — The  chairman  of  the  board  shall  preside 
at  all  meetings  thereof.  He  shall,  together  with  the  officers  of  the 
bank,  have  supervision  of  all  credit  records  and  data  concerning 
member  banks  and  borrowers  which  may  be  compiled  from  reports 
and  examinations  of  such  banks.  All  reports  and  statements  made 
to  the  Federal  Reserve  Board  shall  be  submitted  to  the  chairman 
and  shall  be  countersigned  by  him  as  Federal  reserve  agent.  All 
examinations  of  member  banks  made  on  behalf  of  the  Federal 
Reserve  Board  shall  be  conducted  under  his  general  direction  as 
such  agent. 

Section  3.  Deputy  Federal  Reserve  Agent. — In  the  absence  or 
disability  of  the  chairman,  as  such,  or  as  Federal  reserve  agent, 
his  powers  shall  be  exercised  and  his  duties  performed  by  the 
deputy  Federal  reserve  agent.  Subject  to  the  rules  and  regulations 
of  the  Federal  Reserve  Board  and  the  direction  of  the  Federal  re- 
serve agent,  such  deputy  shall  represent  the  bank  in  examinations 
of  member  banks  and  shall  perform  such  other  duties  as  may  be 
assigned  to  him.  In  case  of  the  absence  or  disability  of  both  the 
Federal  reserve  agent  and  his  deputy,  the  third  member  of  Class  C 
of  the  board  of  directors  shall  act  as  chairman  and  Federal  reserve 
agent  pro  tern. 

Section  4.  The  President. — The  president  shall  have  general 
charge  of  the  bank  and  shall  preside  at  all  meetings  of  the  execu- 
tive committee,  subject,  however,  to  such  rules  and  regulations  as 
may  be  incorporated  herein  or  from  time  to  time  promulgated  by 
the  board  of  directors.  He  shall  have  power  to  make  any  and  all 
transfers  of  securities  of  the  bank  which  may  be  authorized  to  be 
sold  by  the  executive  committee  and  shall,  jointly  with  the  secre- 
tary-treasurer, sign  all  certificates  of  stock  of  the  bank. 

In  all  cases  where  the  duties  of  subordinate  officers  and  agents 
of  the  bank  are  not  specifically  prescribed  by  the  by-laws  or  the 
board  of  directors,  they  shall  be  the  duties  specified  by  and  instruc- 
tions of  the  president.  The  president  may,  with  or  without  the 
advice  of  the  executive  committee,  suspend  or  remove  any  em- 
ployee of  the  bank,  subject,  however,  to  a hearing  before  said  com- 
mittee. 

The  secretary-treasurer  shall  have  custody  of  the  seal  of  the 
bank,  with  power  to  affix  the  same  to  certificates  of  stock  and 
other  instruments,  as  may  from  time  to  time  be  required. 

*The  number  of  vice-presidents  will  depend  upon  the  size  of 
the  bank  and  the  character  of  its  work. 


24 


Section  5.  The  Vice-Presidents. — In  case  of  the  absence  or  dis- 
ability of  the  president,  his  powers  shall  be  exercised  and  his 
duties  discharged  by  the  first  vice-president,  and,  in  the  absence  or 
disability  of  the  latter,  by  the  second  vice-president.  In  the  event 
of  the  absence  or  disability  of  all  three,  the  executive  committee 
shall,  by  a majority  vote  of  its  members,  appoint  a director  presi- 
dent pro  tern. 

Section  6.  The  Secretary-Treasurer. — The  secretary-treasurer* 
shall  carry  out  the  instructions  of  the  Board  of  Directors  regarding' 
the  custody  of  all  moneys  received  and  paid  out  on  account  of 
the  bank.  He  shall,  jointly  with  the  president,  have  custody  of 
all  investments  of  the  bank.  He  shall  keep  the  minutes  of  all 
board  meetings  and  of  all  committees  of  the  board. 

ARTICLE  IV. 

Counsel. 

Section  1.  The  board  of  directors  shall,  subject  to  the  approval 
of  the  Federal  Reserve  Board  and  upon  such  terms  as  it  may  pre- 
scribe, appoint  a counsel  who  shall  represent  the  bank  in  such 
matters  as  may  be  assigned  to  him  and  shall  approve  all  legal  in- 
struments. 

ARTICLE  V. 

Auditor. 

Section  1.  The  board  shall  appoint  an  auditor,  who  shall  be 
subject  to  its  direction  and  to  that  of  the  Federal  reserve  agent 
and  shall  make  a weekly  report  direct  to  the  board  of  directors  of 
the  Federal  reserve  bank,  giving  a full  statement  of  condition  based 
upon  his  audit.  The  auditor  shall  have  charge  of  the  internal 
auditing  of  the  bank,  the  reconciliation  of  accounts,  the  periodical 
examination  of  branches,  and,  in  general,  the  audit  of  all  trans- 
actions, expenses,  receipts,  and  disbursements. 

ARTICLE  VI. 

Bonds. 

Subject  to  the  rules  and  regulations  of  the  Federal  Reserve 
Board,  the  board  of  directors  shall  provide  all  bonds  necessary  to 
cover  officers  and  clerks  of  the  bank. 

ARTICLE  VII. 

Branches. 

All  branches  established  by  the  board  shall  conduct  business  in 
the  manner  prescribed  for  the  main  office  and  pursuant  to  such 
by-laws,  rules,  regulations,  and  directions  as  may  from  time  to 
time  be  promulgated  by  the  directors  and  officers  of  the  bank. 

♦Whether  one  or  two  officers,  will  depend  upon  the  size  of 
the  bank  and  the  character  of  its  work. 


25 


ARTICLE  VIII. 

Information. 

Section  1.  All  persons  employed  by  the  bank  shall  keep  invio- 
late its  business  affairs  and  concerns,  and  shall  not  disclose  or 
divulge  the  same  to  any  unauthorized  person  whomsoever.  Any 
employee  who  shall  give  information  contrary  to  this  by-law  shall 
be  liable  to  immediate  dismissal. 

Section  2.  The  action  or  policy  of  the  board  and  of  the  execu- 
tive committee  shall  not  be  expressed  by  any  individual  member, 
but  by  its  duly  constituted  officers  after  formal  action  by  the  whole 
board. 

Section  3.  For  the  information  of  member  banks  and  the  pub- 
lic, there  shall  be  maintained  in  the  office  of  the  secretary-treasurer 
a bulletin  board,  upon  which  shall  appear  the  current  rates  of 
discount  established  by  the  directors  and  such  other  information 
as  they  may  deem  it  necessary  to  make  public. 

ARTICLE  IX. 

Certificates  of  Stock. 

All  certificates  of  stock  shall  be  signed  by  the  President  and 
Secretary-Treasurer,  and  bear  the  corporate  seal. 

ARTICLE  X. 

Transfers. 

No  transfer  shall  be  permitted,  except  upon  the  surrender  of  the 
outstanding  certificate  of  stock  or  scrip,  and  no  new  certificate  shall 
be  issued  until  the  former  certificate  is  cancelled;  but  the  Board 
of  Directors  may  authorize  the  issue  of  a duplicate  in  place  of  a 
lost  certificate,  taking  a satisfactory  bond  of  indemnity.  It  shall  be 
the  duty  of  the  Federal  Reserve  Agent  to  register  the  stock  or  scrip 
of  the  bank. 

ARTICLE  XI. 

Amendments. 

These  by-laws  may  be  amended  at  any  regular  meeting  of  the 
board  by  a majority  vote  of  the  entire  board;  provided,  however, 
that  a copy  of  such  amendment  shall  have  been  delivered  to  each 
member  at  least  ten  days  prior  to  such  meeting. 

INTERNAL  REGULATIONS. 

Besides  the  general  by-laws  as  thus  set  forth,  it  is  believed  that 
the  proper  conduct  of  the  new  banks  will  call  for  a code  of  rules 
of  internal  regulations. 

Probably  one  of  the  greatest  initial  difficulties  in  opening  the 
Federal  Reserve  Banks  will  be  the  securing  of  a competent  staff. 
The  continued  efficiency  of  even  a thoroughly  competent  corps  of 
Bank  employees  depends  largely  upon  the  discipline  in  vogue  in 
the  institution.  Such  discipline  requires  the  application  of  rules 
designed  to  promote  morale  and  proper  thoroughness. 

These  rules  should  be  sufficiently  wide  in  their  latitude  to  insure 


26 


the  primary  essentials  of  co-ordination.  Their  structure  should  be 
more  than  a series  of  prohibitions,  and  should  serve  to  give  the 
tendency  toward  that  which  is  desired,  even  if  not  categorically 
expressed. 

They  should  at  least  be  so  arranged  as: 

1.  To  set  forth  the  time  at  which  employees  of  various  grades 
should  report  for  duty;  to  stipulate  when  the  windows  shall  be 
closed  for  business;  to  designate  a maximum  lunch  period;  to 
provide  for  temporary  absence  or  leave  of  absence;  to  provide  for 
reports  of  tardiness,  and  to  provide  for  overtime  work. 

2.  To  set  forth  when  the  vault  shall  be  opened  and  closed  and 
upon  what  authority  the  vault  may  be  kept  open  after  the  time 
provided;  to  designate  what  records  shall  be  kept  by  the  Vault 
Officer  and  what  his  duties  shall  be;  to  stipulate  what  parties  in 
conjunction  shall  hold  combinations. 

3.  To  require  care  to  be  taken  of  securities  in  the  various  de- 
partments, to  set  forth  how  shipments  of  securities  must  be 
handled;  to  provide  for  receipting  and  recording  of  securities  re- 
ceived and  delivered;  to  set  forth  under  what  conditions  and  under 
what  authority  valuables  may  be  deposited  and  withdrawn  from 
the  vault. 

4.  To  set  forth  certain  necessary  regulations  and  restrictions 
regarding  apparel,  neatness,  and  habits;  to  prescribe  mutual  cour- 
tesy and  politeness;  to  resti'ict  smoking  to  certain  hours. 

5.  To  require  neatness  of  desks,  cabinets,  and  other  working 
furniture;  to  require  care  and  neatness  in  records  prescribing  how 
records  shall  be  kept  and  closed. 

6.  To  provide  for  initialing  and  signing  of  all  necessary  tickets 
and  vouchers,  what  class  of  entries  certain  authorities  are  em- 
powered to  sanction;  to  provide  for  signing  of  checks,  receipts,  and 
other  papers. 

7.  To  describe  the  duties  and  powers  of  the  auditor;  to  specify 
to  whom  the  auditor  is  responsible  and  to  what  extent  his  au- 
thority obtains  in  the  matter  of  accounting  and  the  records;  to 
place  final  responsibility  for  all  systems  and  changes  on  the 
auditor. 

8.  To  indicate  how  supplies  shall  be  ordered  and  how  audited; 
to  state  upon  whose  authority  expenditures  may  be  incurred;  to 
prescribe  when  bills  shall  be  paid,  who  shall  receive  and  distribute 
supplies;  to  require  that  when  re-orders  are  necessary  old  forms 
shall  be  submitted  to  auditor  for  possible  change  and  correction. 

9.  To  provide  who  shall  code  and  decode  cables  and  telegrams; 
to  designate  an  officer  who  shall  hold  test -words  and  keys;  to 
prescribe  how  copies  and  records  shall  be  kept  and  telegraph  bills 
checked. 

10.  To  prescribe  who  shall  receive,  assort,  and  distribute  mail, 
who  shall  be  authorized  to  sign  letters;  to  direct  how  correspon- 
dence files  shall  be  kept  and  how  access  thereto  may  be  granted. 

11.  To  provide  for  the  assembling  of  all  reports  in  the  hands 
of  a designated  functionary  at  a certain  time. 


27 


WORK  OF  TRANSFER  AGENT. 


It  is  further  suggested  that  in  case  the  Federal  Reserve  agent 
shall  be  authorized  to  act  as  agent  for  the  transfer  of  stock  of  the 
bank  to  which  he  is  accredited  the  following  considerations  be 
observed  b'y  him,  particularly  in  relation  to  stock,  if  any,  that  may 
be  held  by  individuals.  It  is  understood  that  at  the  outset  no  such 
stock  will  be  held  by  individual  stockholders;  but  a set  of  regula- 
tions designed  to  cover  not  only  present  conditions,  but  those  that 
might  arise  under  the  terms  of  the  law  has  been  developed. 

1.  The  salient  point  in  transferring  certificates  of  stock  is  to 
ascertain  who  has  authority  to  assign  the  certificate  and  how  the 
authority  was  granted;  whether  by  special  resolution,  general 
resolution,  or  by  the  By-Laws,  in  respect  to  a corporation;  whether 
by  will,  indenture,  or  Court  order,  in  respect  to  Executors,  Trustees, 
Administrators,  Guardians,  Agents,  and  the  like;  or  whether  by 
power  of  attorney. 

2.  In  every  case  proof  of  papers  submitted  shall  be  first  ascer- 
tained to  the  satisfaction  of  the  Transfer  Agent.  He  shall  require 
that  certificates  issued  in  the  name  of  a corporation  or  an  asso- 
ciation be  endorsed  by  such  officials  authorized  by  a special  or 
general  resolution,  or  the  By-Laws,  and  a certified  copy  thereof 
attested  by  the  Secretary  with  the  seal  affixed,  filed  with  the  stock 
certificate.  A copy  of  the  resolution  shall  be  accompanied  by  a 
notary’s  certificate  certifying  that  he  had  inspected  the  minutes  and 
that  the  resolution  was  a true  copy  thereof. 

3.  In  issuing  certificates  to  Trustees,  the  trust  shall  be  fully 
described  by  a reference  to  the  will  or  indenture  under  which  the 
trust  is  created,  and  the  name  of  beneficiary  given,  if  possible.  In 
transfers  from  Trustees,  all  Trustees  shall  sign,  and  transfers  must 
be  accompanied  by  a copy  of  instruments  properly  certified  showing 
the  authority  of  the  Trustees  to  sell  or  transfer.  Trustees  appointed 
by  a Court  shall  exhibit  both  certified  copy  of  instrument  and 
certified  copy  of  the  Court  appointment.  Transfers  by  Adminis- 
trators shall  be  accompanied  by  a copy  of  appointment  certified  by 
the  Probate  Court.  Transfers  by  Executors  or  Administrators,  with 
the  will  annexed,  shall  be  accompanied  by  a copy  of  the  will  and 
copy  of  the  Court  appointment,  both  certified  by  the  Probate  Court. 

4.  In  issuing  certificates  to  a minor,  the  Guardian’s  name  shall 
also  be  given,  as  follows;  “James  Brown  (minor)  under  Guardian- 
ship of  William  Jones.” 

Transfers  from  a minor  shall  be  made  only  by  a Guardian  ap- 
pointed by  the  Court,  who  shall  exhibit  a properly  certified  copy  of 
his  appointment. 

5.  Trustees,  Executors,  Administrators,  Guardians,  or  Agents 
shall  not  transfer  directly  to  themselves  individually. 

6.  In  transfers  executed  by  an  Attorney,  the  original  power  of 
attorney,  certified  by  a Notary,  or  a copy  of  same  shall  be  left  on 
file.  Authority  to  transfer  stock  shall  appear  in  the  instrument, 
and  evidence  is  required  that  the  signature  to  the  power  of  attorney 


2S 


is  genuine  and  that  the  power  of  attorney  is  in  force  at  the  time 
of  transfer. 

7.  In  issuing'  a certificate  to  a married  woman,  her  Christian 
name  and  not  that  of  her  husband  with  “Mrs.”  prefixed  shall  be 
used.  In  case  a new  certificate  is  desired  by  reason  of  change  of 
name  by  marriage  of  an  unmarried  woman,  the  old  certificate  shall 
be  signed  as  follows:  “Mrs.  Mary  E.  Brown  (formerly  B.  Smith),” 
the  new  certificate  being  issued  in  the  name  of  “Mrs.  Mary  E. 
Brown.” 

8.  Signatures  on  assigned  certificates  shall  be  guaranteed  or 
notarially  acknowledged. 

9.  Transfers  shall  not  be  made  directly  from  husband  to  wife  or 
from  wife  to  husband. 

10.  Certificates  issued  in  the  name  of  an  individual  shall  show 
their  Christian  name  as  follows:  John  Smith,  Charles  A.  Jones. 

11.  Certificates  issued  in  the  name  of  a bank,  corporation,  or 
association  shall  show  title  and  address  as  follows: 

First  National  Bank,  New  York  City. 

First  National  Bank,  Chicago,  111. 

Farmers  National  Bank,  St.  Louis,  Mo. 

12.  Certificates  shall  not  be  issued  in  the  name  of  an  estate  of  a 
deceased  person,  but  in  the  name  of  the  representative  of  the  said 
estate. 

13.  Certificates  in  the  name  of  a deceased  person  shall  not  be 
transferred  until  the  filing  of  papers  as  aforesaid  and  the  filing  with 
the  Transfer  Agent  of  consent  from  the  Comptroller  of  the  State 
in  which  deceased  resided. 

14.  All  transfers  in  the  name  of  a deceased  person  shall  be  re- 
ferred to  Counsel  of  Transfer  Agent,  as  each  state  has  different 
inheritance  laws  in  respect  to  estates  of  decedents. 

15.  The  signature  of  the  assignment  on  the  back  of  stock  cer- 
tificates shall  correspond  to  the  name  as  written  on  the  face  of 
the  certificate  in  every  particular,  without  alteration. 

16.  All  notarial  acknowledgments  shall  have  affixed  a certificate 
of  certification  by  County  Clerk  or  Court  of  notarial  authority. 

SYSTEM  OF  ACCOUNTING. 

As  already  noted,  the  system  of  accounting  to  be  employed  by 
the  reserve  banks  is  logically  to  be  considered  and  dealt  with  under 
the  head  of  organization.  Inasmuch,  however,  as  the  accounting 
problems  of  the  banks  necessarily  involve  references  to  features 
of  business  management,  such  as  the  clearing  system  of  the  banks, 
the  duties  of  Federal  Reserve  agents  and  others,  it  is  deemed  pref- 
erable to  postpone  consideration  of  the  accounting  system  of  the 
banks  until  all  matters  of  organization  involving  modifications  or 
adjustments  of  accounting  processes  have  been  concluded. 

FEDERAL  RESERVE  AGENTS. 

The  Federal  reserve  act  provides  for  the  appointment  of  a new 
type  of  official,  heretofore  unknown  to  Federal  law,  to  be  designated 


29 


as  “Federal  Reserve  Agents.”  With  reference  to  these  agents  the 
reserve  act  provides  (section  4)  as  follows: 

“Class  C directors  shall  be  appointed  by  the  Federal  re- 
serve board.  They  shall  have  been  for  at  least  two  years 
residents  of  the  districts  for  which  they  are  appointed,  one 
of  whom  shall  be  designated  by  said  board  as  chairman  of 
the  board  of  directors  of  the  Federal  reserve  bank  and  as 
Federal  reserve  agent.  He  shall  be  a person  of  tested  bank- 
ing experience:  and  in  addition  to  his  duties  as  chairman 
of  the  board  of  directors  of  the  Federal  reserve  bank,  he 
shall  be  required  to  maintain  under  regulations  to  be  estab- 
lished under  the  Federal  reserve  board  a local  office  of  said 
board  on  the  premises  of  the  Federal  reserve  bank.  He  shall 
make  regular  reports  to  the  Federal  reserve  board  and  shall 
act  as  its  official  representative  for  the  performance  of  the 
functions  conferred  upon  it  by  this  act.  He  shall  receive  an 
annual  compensation  to  be  fixed  by  the  Federal  reserve  board 
and  paid  monthly  by  the  Federal  reserve  bank  to  which  he  is 
designated.” 

Elsewhere  in  the  act  it  is  provided  that  the  reserve  board  shall: 
“Make  regulations  for  the  safeguarding  of  all  collateral, 
bonds,  Federal  reserve  notes,  money,  or  property  of  any  kind 
deposited  in  the  hands  of  such  agents.  . . .” 

By  Section  16  it  is  provided  that: 

“Any  Federal  reserve  bank  may  make  application  to  the 
local  Federal  reserve  agent  for  such  amount  of  the  Federal 
reserve  notes  hereinbefore  provided  for  as  it  may  require. 
Such  application  shall  be  accompanied  with  a tender  to  the 
local  Federal  reserve  agent  of  collateral  in  amount  equal  to 
the  sum  in  the  Federal  reserve  notes  thus  applied  for  and 
issued  pursuant  to  such  application.  The  collateral  security 
thus  offered  shall  be  notes  and  bills  accepted  for  discount 
under  the  provisions  of  section  13  of  this  act,  and  the  Federal 
reserve  agent  shall  each  day  notify  the  Federal  reserve  board 
of  all  issues  and  withdrawals  of  Federal  reserve  notes  to 
and  by  the  Federal  reserve  bank  to  which  he  is  accred- 
ited. . . .” 

The  functions  of  Federal  reserve  agents  as  thus  set  forth  are 
broad  inasmuch  as  the  agent  is  made  the  local  representative  of 
the  Federal  reserve  board  for  the  performance  of  the  functions 
entrusted  to  such  board.  The  agent  is  therefore  able  to  exercise 
under  the  direction  of  the  said  'board  such  powers  as  the  board 
may  desire  specifically  to  entrust  to  him.  At  the  same  time  the 
act  is  exceedingly  specific  in  its  directions  with  reference  to  the 
records  that  are  to  be  maintained  by  such  agent.  While  experi- 
ence will  undoubtedly  in  the  long  run  alter  and  develop  any  con- 
ceptions of  the  functions  of  Federal  reserve  agent  which  may  be 
employed  at  the  beginning,  it  is  manifestly^  necessary  to  develop  a 
set  of  instructions  for  Federal  reserve  agents  to  be  used  by  them 
at  the  inauguration  of  the  reserve  banks  and  to  continue  in  use 

30 


until  such  time  as  experience  may  demonstrate  the  necessity  of 
some  new  method  of  describing'  such  functions  or  some  extension 
of  them,  while  it  is  equally  desirable  and  necessary  to  describe 
with  care  the  records  which  are  to  be  maintained  by  such  agents. 

Attention  will  first  toe  paid  to  the  gejieral  duties  of  the  agent 
himself  and  to  the  scope  of  the  functions  to  be  performed  by  him. 

The  intent  of  the  act  never  was  that  of  placing  the  Federal 
reserve  agent  in  charge  of  the  Federal  reserve  bank  to  which  he 
is  accredited  or  of  vesting  him  with  practical  banking  functions  in 
the  direct  management  of  business  relationships  between  the  re- 
serve bank  and  its  member  banks.  Its  purpose  was  to  make  him 
a local  supervisory  factor  representing  the  Federal  reserve  board 
and  ultimately  the  Government,  that  is  to  say  the  public,  his 
duties  being  fundamentally  those  of  controlling  the  issue  of  the 
notes  applied  for  by  the  reserve  banks  and  of  inspecting  and  su- 
pervising banking  operations  in  the  district  for  the  purpose  of 
assuring  himself,  and  of  toeing  able  to  assure  the  reserve  board, 
that  the  banks,  both  member  and  Federal  reserve,  were  complying 
with  the  letter  and  spirit  of  the  law. 

In  pursuance  of  this  conception  of  the  duties  of  Federal  reserve 
agents,  it  will  be  necessary  for  the  Federal  Reserve  Bank  to  be  in 
possession  of  detailed  information  concerning  each  member  bank, 
as  to  financial  condition,  character  of  management,  competency 
of  officers  and  directors,  care  exercised  in  granting  and  checking 
credits,  custom  in  extending  accommodation  to  directors  and  of- 
ficers, or  to  corporations  which  they  may  own,  control,  or  be 
interested  in,  and  relations  with  large  borrowers.  Safeguards 
must  be  adopted  to  control  the  use  of  rediscounting  power  and  to 
check  overexpansion. 

In  this  connection,  it  will  be  desirable  to  have  detailed  records. 

It  will  be  necessary  for  the  Federal  Reserve  Agent  to  be  fa- 
miliar with  the  affairs  of  the  bank  and  the  general  business  and 
credit  conditions  in  the  district  which  the  bank  serves.  For  this 
reason,  it  is  both  desirable  and  necessary  that  a plan  be  adopted 
which  will  give  to  the  Federal  Reserve  Agents,  facilities  for  ob- 
taining definite,  reliable,  accurate,  and  detailed  information. 

Application  for  the  issue  of  Federal  Reserve  notes  must  be 
made  to  the  Reserve  Agent  and  must  be  accompanied  by  a tender 
of  bills  and  notes  as  collateral  security  (Sec.  16,  Par.  2).  It  is 
therefore  suggested: 

1.  That  the  Federal  Reserve  Agent  exercise  general  supervi- 
sion over  credit  records  and  data  concerning  member  banks  and 
borrowers  which  may  be  compiled  from  reports  and  examinations 
of  member  banks,  and  elsewhere. 

2.  That  all  statements  or  reports  made  to  the  Federal  Reserve 
Board,  be  prepared  under  the  direction,  or  bear  the  countersigna- 
ture of  the  Federal  Reserve  Agent. 

3.  That  special  examinations  of  member  banks  provided  for  in 
the  act  should,  when  undertaken,  be  made  under  general  direction 
of  the  Federal  Reserve  Agent. 


31 


We  may  now  proceed  to  enumerate  the  chief  features  of  a plan 
for  the  management  of  the  business  of  the  Federal  Reserve  Agent. 

GENERAL  PLAN— STATEMENT  AND  REPORTS. 

1.  FEDERAL  RESERVE  BANKS: 

There  should  be  adopted  a form  of  General  Statement  or  Bal- 
ance Sheet  which  will  show  on  its  face  the  true  condition  of  each 
bank  and  give  under  appropriate  headings  the  assets  and  liabili- 
ties in  detail,  as  well  as  such  supplemental  information  as  will  be 
necessary  to  give  to  the  Federal  Reserve  Board  an  idea  of  general 
business  and  financial  conditions  in  the  district  which  the  bank 
serves. 

2.  WEEKLY  REPORT: 

At  the  close  of  business  Friday  of  each  week  a statement, 
showing  the  general  condition  of  each  Federal  Reserve  Bank,  should 
be  forwarded  by  the  agent  to  the  Federal  Reserve  Board  at  Wash- 
ington. Figures  should  be  telegraphed  so  as  to  be  received  at 
Washington  by  9 A.  M.  Saturday  morning. 

3.  FEDERAL  RESERVE  BOARD: 

A statement  showing  condition  of  each  Federal  Reserve  Bank 
and  a consolidated  statement  for  all  Federal  Reserve  Banks  is  to 
be  published  once  each  week.  (Section  11,  Paragraph  A.)  It  is 
suggested  that  publication  be  made  either  on  Saturday  or  Mon- 
day. This  will  be  more  fully  discussed  in  speaking  of  the  board 
itself. 

4.  MEMBER  BANKS: 

For  the  purpose  of  ascertaining  the  general  condition  of  mem- 
ber banks  in  each  Federal  Reserve  District,  it  is  suggested  that  a 
weekly  report,  showing  the  average  condition  of  each  member 
bank,  be  made  to  the  head  office  of  each  Federal  Reserve  Bank,  at 
the  close  of  business  Friday  of  each  week.  The  figures  should  be 
compiled  under  the  direction  of  the  Federal  Reserve  Agent  and 
the  summary  forwarded  by  mail  or  telegraph  to  the  Federal  Re- 
serve Board.  If  deemed  advisable,  a brief  summary  of  condition 
of  member  banks  in  each  Federal  Reserve  District  and  a combined 
statement  of  all  member  banks  should  be  published  not  later  than 
Wednesday  of  following  week,  by  the  Federal  Reserve  Board. 

5.  RELATIONS  WITH  BOARD: 

The  Federal  Reserve  Agent  must  each  day  notify  the  Federal 
Reserve  Board  of  all  issues  and  withdrawals  of  Federal  Reserve 
Notes  to  and  by  the  Federal  Reserve  Bank  to  which  he  is  accred- 
ited. (Section  16,  Paragraph  2.)  It  is  suggested  that  the  Federal 
Reserve  Agent  be  also  required  to  forward  to  the  Federal  Reserve 
Board  at  the  close  of  business  Friday  of  each  week  a detailed 
statement  giving: 

(1,)  Amount  of  gold  and  lawful  money  deposited  with  him  by 
the  Federal  Reserve  Bank  to  which  he  is  accredited  for  exchange 
for  outstanding  Federal  Reserve  notes.  (2)  Bills  of  exchange, 
notes  and  drafts  held  by  him  as  collateral  to  Federal  Reserve 


32 


notes  issued  to  the  Federal  Reserve  Bank.  (3)  Record  of  the  total 
outstanding  notes  at  the  beginning  of  week,  notes  issued  or  re- 
tired during  the  week,  and  liability  of  Federal  Reserve  Bank  upon 
outstanding  notes  on  day  of  report.  (4)  A summary  to  be  car- 
ried forward  from  previous  report,  showing  amount  of  Federal 
Reserve  Notes  received  from  Comptroller,  outstanding  notes  in  cir- 
culation, notes  returned  to  the  Comptroller  for  cancellation  or  de- 
struction, and  notes  in  hands  of  Federal  Reserve  Agent.  (5)  List 
of  collateral  held  by  Federal  Reserve  Agent,  showing  the  aggregate 
liability  of  makers,  drawers,  endorsers,  and  acceptors,  on  bills  of 
exchange,  notes,  and  drafts,  received  from  Bank,  as  security  for 
Federal  Reserve  Notes  issued. 

Forms  designed  to  serve  for  the  preparation  of  these  reports 
and  records  have  been  carefully  drafted  and  will  be  found  in  the 
collections  of  forms  accompanying  this  report.  Two  distinct  sets 
of  forms  for  the  purpose  of  carrying  out  the  foregoing  recom- 
mendations have  been  drafted — one  set  accompanying  the  ac- 
counting plan  presented  in  Appendix  I,  and  numbered  as  portfolio 
III,  the  other  included  in  that  presented  in  Appendix  II,  and 
numbered  as  portfolio  II. 

IDENTIFICATION  OF  NOTES. 

In  this  connection  it  is  also  deemed  best  to  make  a recommend- 
ation that  will  be  of  considerable  importance  in  furthering  the 
convenience  of  the  reserve  banks  in  assorting  their  notes. 

Section  16,  Paragraph  3,  of  the  Federal  Reserve  act  provides 
that: 

“Notes  . . . shall  bear  upon  their  faces  a distinctive 
letter  and  serial  number  which  shall  be  assigned  by  the 
Federal  Reserve  Board  to  each  Federal  reserve  bank.” 

In  order  that  a uniform  set  of  numbers  may  apply  to  the  Fed- 
eral reserve  system  throughout,  it  is  recommended  that  the  number 
which  shall  appear  on  the  Federal  reserve  notes  as  above  pro- 
vided, shall  be  the  official  number  of  the  city  where  the  issuing 
Federal  reserve  bank  is  located,  according'  to  the  system  of  num- 
bers now  used  by  the  banks  of  the  country  in  numbering  checks. 
The  consecutive  order  of  these  numbers  is  based  upon  population. 
Letters  should  also  be  assigned  to  the  banks  to  indicate  their  posi- 
tion in  the  reserve  system,  the  Arabic  numerals  being  arbitrary 
so  far  as  that  system  itself  is  concerned. 

Some  of  the  Federal  reserve  districts  and  banks  would,  under 
this  system,  be  numbered  as  follows: 


1. 

A 

New  York. 

2. 

B 

Chicago. 

3. 

C 

Philadelphia. 

4. 

D 

St.  Louis. 

5. 

E 

Boston. 

11. 

F 

San  Francisco. 

The  use  of  letters  in  connection  with  these  numbers  makes  pos- 


33 


sible  a continuity  of  designation,  so  that  if  additional  reserve  hanks 
are  organized  it  will  not  be  necessary  to  change  any  previous  num- 
bers or  letters. 

The  notes  should  be  printed  with  the  letters  and  numbers  in  the 
upper  right-hand  corner  and  the  lower  left  hand  corner,  and  they 
should  be  sufficiently  distinct  to  enable  tellers  and  clerks  to  assort 
the  notes  readily  by  number  when  preparing  them  for  return  to 
their  originating  banks. 

EXAMINATIONS: 

In  connection  with  the  sections  of  the  Federal  Reserve  Act  con- 
cerning examinations,  suggestion  is  made  as  to: 

1.  Examination  of  Federal  Reserve  Banks  and  Branches. 

2.  Examination  of  Records  and  Accounts  of  Federal  Reserve 
Agents. 

3.  Examination  of  affairs  of  Member  banks,  so  as  to  inform  the 
Federal  Reserve  Bank  as  to  the  condition  of  Member  banks  and 
lines  of  credit  that  are  being  extended.  (Sec.  21,  Paragraph  3.) 

4.  Establishment  of  a Credit  Bureau  in  each  district  for  col- 
lecting and  compiling  information  concerning  Member  banks,  and 
borrowers  who  are  dealing  with  Member  banks,  or  who  are  selling 
paper  in  the  open  market. 

FEDERAL  RESERVE  BANK: 

Sec.  11,  (Par.  A)  authorizes  and  empowers  the  Federal  Re- 
serve Board  to  examine  at  its  discretion  accounts,  books,  and  af- 
fairs of  each  Federal  Reserve  Bank. 

Sec.  21,  (Par.  5)  provides  that  the  Federal  Reserve  Board  shall 
at  least  once  each  year  order  an  examination  of  each  Federal 
Bank,  and  upon  joint  application  of  ten  Member  Banks,  the  Federal 
Reserve  Board  shall  order  a special  examination  and  report  of 
condition  of  any  Federal  reserve  bank. 

The  law  provides  for  an  examination  of  each  Federal  Reserve 
Bank,  at  least  once  a year.  Each  bank  should  be  examined  twice 
yearly.  It  would  be  well  if  possible  to  have  all  Reserve  Banks  ex- 
amined by  a carefully  selected  corps  of  bank  specialists,  who  would 
be  instructed  to  make  a thorough  and  detailed  audit  of  the  af- 
fairs of  each  bank,  making  full  report  to  Federal  Reserve  Board 
and  to  the  Board  of  Directors  of  each  Federal  Reserve  Bank. 

The  examination  should  cover  a thorough  investigation  of  in- 
vestments, rediscounts,  collateral  loans,  and  open  market  transac- 
tions, particular  attention  to  be  paid  to  compliance  with  the  pro- 
visions of  the  Federal  Reserve  Act  and  to  the  rulings  of  the  Fed- 
eral Reserve  Board.  Relations  ■with  the  foreign  Agents,  agencies, 
banks,  and  branches  of  Federal  Reserve  Banks,  should  be  inves- 
tigated, and  balances  and  accounts  should  be  verified  and  recon- 
ciled. Accounts  of  Member  banks  and  balances  due  to  or  from 
other  Federal  Reserve  Banks  should  be  reconciled,  as  should  also 
all  monies  on  deposit  to  the  credit  of  the  United  States  Govern- 
ment, or  of  public  officials.  The  Foreign  Department  in  each  bank 


34 


should  be  audited.  Profit  and  Loss  accounts  should  be  carefully 
analyzed.  Thus,  the  examination  should  cover  a complete  audit  of 
the  Bank  and  branches.  The  examiner  should  consult  with  the  Fed- 
eral Reserve  Agent  and  the  Board  of  Directors,  upon  the  com- 
pletion of  the  examination. 

Report  should  also  be  made  as  to  the  competency  of  manage- 
ment, condition  of  records,  attention  given  by  directors  to  the  af- 
fairs of  the  Bank  under  examination,  and  attention  should  be 
called  to  any  unsafe  or  unsound  condition  or  tendency  that  might  be 
apparent  in  any  department  of  the  bank. 

The  use  of  a special  corps  of  examiners  for  examinations  of 
Federal  Reserve  Banks  would  have  many  advantages.  The  work 
will  call  for  men  combining  the  qualities  of  credit  specialists,  ap- 
praisers, and  bank  accountants.  The  examiners  will  become  more 
valuable  at  each  succeeding  examination. 

EXAMINATION  OF  RECORDS  OF  FEDERAL  RESERVE  AGENT 

The  records  and  accounts  of  the  Federal  Reserve  Agent,  in 
each  Federal  Reserve  district  should  be  examined  at  least  quarter- 
ly, and  a detailed  report  made  to  the  Federal  Reserve  Board  by 
examiners  in  its  employ.  The  examination  should  cover  a verifi- 
cation (a)  of  gold  and  lawful  money  held  by  Federal  Reserve 
Agent,  deposited  with  him  by  the  Federal  Reserve  Bank  for  ex- 
change for  outstanding  Federal  Reserve  Notes;  (b)  of  all  bills 
of  exchange,  notes,  and  drafts  held  as  collateral  security  for  Fed- 
eral Reserve  notes;  (c)  records  of  substitution  and  withdrawals 
of  collateral;  (d)  of  Federal  Reserve  notes,  received  from  Comp- 
troller of  Currency,  delivered  to  Federal  Reserve  Banks  and  in 
hands  of  Federal  Reserve  Agent;  (e)  of  all  other  books  and 
records. 

In  each  bank  there  should  be  an  Auditor,  who  should  be  under 
instructions  and  subject  to  the  direction  of  the  Federal  Reserve 

MEMBER  BANK  EXAMINATIONS. 

Sec.  21  provides:  “The  Comptroller  shall  appoint  examiners  who 
shall  examine  every  Member  Bank  at  least  twice  each  year,  pro- 
vided, however,  that  the  Federal  Reserve  Board  may  authorize  ex- 
aminations by  the  State  authorities  to  be  accepted  in  the  case  of 
State  Banks  or  Trust  Companies,  that  are  stockholders  in  any 
Federal  Reserve  Bank.  The  examiner  making  the  examination  of 
any  National  Bank,  or  of  any  other  Member  Bank  . . . shall 

make  a full  and  detailed  report  of  the  condition  of  said  bank  to 
the  Comptroller  of  Currency.” 

Sec.  21,  Par.  3,  provides  that  “In  addition  to  the  examination 
made  and  conducted  by  the  Comptroller  of  Currency,  every  Federal 
Reserve  Bank  may,  with  the  approval  of  the  Federal  Reserve  Agent, 
or  the  Federal  Reserve  Board,  provide  for  special  examination  of 
member  banks  within  the  district.  . . . Such  examinations  shall 

be  so  conducted  as  to  inform  the  Federal  reserve  bank  of  the 
condition  of  its  member  banks  and  of  the  lines  of  credit  which  are 
being  extended  by  them.” 


35 


Under  the  plan  suggested,  each  member  bank  will  forward  to 
the  head  office  of  the  Federal  Reserve  Bank  in  the  district  in 
which  the  member  bank  is  located,  a weekly  report,  slewing  its 
average  condition  for  the  week. 

This  information  will  be  recorded  in  a manner  to  show  changes 
in  condition  from  week  to  week.  For  more  detailed  information, 
however,  the  Federal  Reserve  Bank  will  be  dependent  upon  data 
obtained  in  connection  with  the  examination  of  member  banks. 

Success  in  bank  examinations  depends  to  a large  degree  upon 
the  care  exercised  by  the  examiner  in  investigating  the  lines  of 
credit  extended  to  borrowers  by  the  bank  under  examination,  upon 
the  facilities  which  the  examiner  has  of  obtaining  reliable  infor- 
mation as  to  the  character  and  financial  responsibility  of  the  of- 
ficers, directors,  and  principal  borrowers,  and  finally  upon  the 
method  used  in  collecting,  compiling,  and  recording  information 
for  use  in  subsequent  examinations. 

There  should  be  adopted  in  each  Federal  Reserve  district  a 
uniform  plan  of  examination,  which  would  provide  for  a thorough 
and  detailed  examination  of  each  member  bank  by  a force  of  com- 
petent, well-equipped  examiners,  authorized  to  take  the  necessary 
time.  A high  standard  of  efficiency  should  be  established  which 
would  make  it  attractive  and  desirable  for  State  banking  institu- 
tions to  join  the  Federal  Reserve  System.  Examinations  of  city 
and  country  institutions  should  be  made  equally  effective. 

To  prevent  a multiplicity  of  examinations,  the  special  exami- 
nation by  the  Federal  Reserve  Bank  might  be  made  in  connection 
with  the  regular  examinations  made  by  National  or  State  Bank 
examiners.  Certain  information  should  be  obtained  for  use  of  the 
Federal  Resei’ve  Bank:  (1)  A record  of  all  loans  over  a stated 
amount.  (2)  The  character  of  collateral  accepted  as  security. 
(3)  A record  of  Bank  Stock  hypothecated  at  bank  under  examina- 
tion. (4)  The  classification  of  loans,  investments,  and  collateral. 
Suggested  form  for  use  in  this  connection  has  been  developed  and 
will  be  found  in  the  portfolio  of  forms  accompanying  Appendix  I. 

LOCAL  CREDIT  BUREAU. 

It  is  believed  and  recommended  that  the  Federal  Reserve  Sys- 
tem should  be  equipped  with  very  carefully  prepared  credit  bureau 
records.  Two  plans  for  developing  such  records  have  been  con- 
sidered. Under  one  the  records  would  be  conducted  and  kept  at  the 
several  reserve  banks;  under  the  other  they  would  be  kept  in  a 
single  office  under  direction  of  the  Reserve  Board  in  Washington. 
In  either  case  frequent  communication  of  results  must  occur  be- 
tween the  several  banks  and  the  Board.  A choice  between  the 
two  plans  will  depend  somewhat  upon  the  system  of  accounting 
determined  upon.  In  Appendix  I is  given  a system  of  accounting 
more  adapted  to  the  establishment  of  a local  credit  bureau  in  each 
reserve  bank,  while  in  Appendix  II  records  are  so  formulated  as  to 
concentrate  credit  records  in  Washington  as  a by-product  of  the 
accounting.  The  credit  bureau  principles  in  general  will  be  the 
same  in  either  case.  (See  portfolios  II  and  III.) 


36 


Assuming  for  the  purpose  of  the  discussion  that  in  each  Federal 
Reserve  Bank  a Credit  Bureau  in  charge  of  the  Agent  is  to  be 
established,  its  duty  should  be  the  collection  and  recording  of  data 
concerning  member  banks,  and  the  standing  of  individuals,  firms, 
and  corporations,  discounting  at  or  borrowing  of  member  banks, 
or  selling  paper  in  the  open  market. 

This  Bureau  should  have  card  indexes  showing: 

1.  Loan  Record — compiled  from  examination  reports,  showing- 
borrower’s  loan  liability  at  each  bank,  with  a minimum  limit  of 
$5,000  in  City  and  $2,500  in  Country  banks. 

2.  Bank  Stock  Hypothecation  Record;  showing  bank  stock 
hypothecated  at  member  banks. 

3.  Inactive  Collateral  Record;  showing  Securities  of  small  or 
close  corporations,  or  securities  having  a limited  or  inactive  mar- 
ket, whether  securities  be  held  as  investments,  or  as  collateral  by 
member  banks. 

4.  Record  of  the  business,  firm,  or  corporation  affiliations  of 
the  directors  and  officers  of  every  member  bank  in  the  district. 

5.  Current  record  of  failures,  bankruptcies,  and  large  judg- 
ments affecting  borrowers  of  any  member  bank. 

6.  Record  of  character,  standing,  and  financial  responsibility 
of  all  bankers  and  note  brokers  engaged  in  selling  notes,  drafts, 
and  bills  of  exchange  in  open  market. 

7.  Record  of  standing  and  financial  responsibility  of  individ- 
uals, firms,  and  corporations  selling  notes,  drafts,  and  bills  of  ex- 
change in  open  market. 

A plan  for  the  exchange  of  information  should  be  arranged 
with  the  Credit  Bureaus  established  in  other  Federal  Reserve  Dis- 
tricts, and  with  the  approval  of  the  Comptroller  of  Currency,  with 
the  Credit  Bureaus  established  by  State  Banking  authorities  where 
a proper  system  for  safeguarding  information  has  been  adopted. 

Credit  Bureau  data  should  be  available  to  the  Federal  Reserve 
Agent,  the  executive  officers  and  directors  of  Federal  Reserve 
Banks,  and  the  National  Bank  and  Federal  Reserve  Bank  Exam- 
iners. 

Suggested  forms  for  these  records  are  presented  in  the  port- 
folios accompanying  the  Appendices,  especially  in  portfolio  III. 

The  Credit  Bureau  will  also  have  the  benefit  of  service  of  mer- 
cantile agencies  and  will  no  doubt  subscribe  to  various  financial 
publications. 

OTHER  CREDIT  RECORDS. 

It  is  provided  in  the  general  plans  of  accounting  offered  here- 
with that  each  Federal  Reserve  Bank  shall  keep  detailed  records 
showing : 

1.  The  aggregate  liability  of  member  banks  on  paper  redis- 
counted by  the  Federal  Reserve  Bank,  as  well  as  the  liability  of 
member  banks  on  bills,  notes,  and  drafts  purchased  from  or  dis- 
counted for  others. 

2.  The  aggregate  liability  of  individuals,  firms,  corporations, 


37 


banks,  bankers,  municipalities,  etc.,  on  bills,  notes,  and  drafts, 
rediscounted  for  member  banks,  or  purchased  in  the  open 
market. 

A similar  record  should  be  kept  of  the  liability  of  concerns  upon 
foreign  exchange  bills  and  drafts  bought  and  sold  and  of  foreign 
bills  of  exchange  purchased  for  investment. 

It  will  be  seen  that  there  is  provided  a means  of  ascertaining 
definitely  the  aggregate  liability  of  any  one  firm,  individual,  or 
corporation,  on  bills,  notes,  or  drafts  held  by  the  Reserve  Bank. 
Through  the  Credit  Bureaus  there  will  be  facilities  for  ascertaining 
the  extent  of  paper  held  by  member  banks.  If  the  principal  of- 
fice of  a concern  is  located  in  another  district,  a comparison  may 
be  made  with  the  Credit  Bureau  in  that  district. 

To  ascertain  the  credit  standing  and  financial  responsibility  of 
concerns  selling  their  bills  of  exchange,  notes,  and  drafts  in  the 
o^en  market,  arrangements  may  be  made  to  obtain  from  the  note 
brokers  copies  of  signed  financial  statements  and  copies  of  audi- 
tors’ reports.  Access  to  records  of  Credit  Bureaus  of  other  dis- 
tricts, will  enable  the  Federal  Reserve  bank  to  obtain  definite  in- 
formation as  to  the  extent  of  liability  at  banks  where  principal 
borrowing  accounts  are  maintained.  However,  as  in  the  case  of 
the  credit  departments  in  banks  and  mercantile  houses,  all  infor- 
mation will  have  to  be  systematically  recorded,  statements  care- 
fully analyzed,  and  comparative  statements  made. 

It  will  take  some  years  to  develop  the  Credit  Bureau  and 
Department,  but  each  Federal  Reserve  Bank  will  have  access  to 
many  sources  of  information  which  are  not  at  present  available. 
Through  their  commanding  positions,  the  Federal  Reserve  Board 
and  Banks  will  be  able  to  exercise  a close  supervision  over  the 
commercial  paper  market;  to  eliminate  many  of  the  abuses  which 
are  now  apparent,  and  probably  suggest  a means  of  standardizing 
statements,  audits,  and  reports  of  borrowing  concerns. 

The  Credit  Bureaus  will  aid  examiners  in  their  investigations 
and  tend  to  increase  the  efficiency  of  all  bank  examinations  if  the 
proper  degree  of  co-operation  is  established.  The  Bureau  will  have 
after  each  examination  definite  information  regarding  the  credits 
and  condition  of  the  bank.  The  Federal  Reserve  Bank  will  be 
vitally  interested  in  all  data  concerning  the  standing  of  each  mem- 
ber bank,  in  order  to  determine  the  line  of  rediscount  that  may 
be  safely  and  wisely  extended.  To  prevent  inflation  and  an  abuse 
of  the  accepting  power,  there  must  be  continuous  vigilance. 

The  power  to  restrict  or  limit  the  rediscounting  privilege  will 
be  effective  in  forcing  the  elimination  of  lax  methods  and  unsafe 
practices;  will  prevent  the  gradual  accumulation  of  questionable 
assets,  and  will  in  effect  require  members  to  conduct  business 
along  sound,  businesslike  lines.  The  Federal  Reserve  Examina- 
tions of  member  banks  and  examinations  by  National  Bank 
Examiners  will  be  a distinct  advantage  to  members  and  Will 
eventually  prove  a guarantee  of  solvency. 


33 


If  the  main  work  of  conducting-  credit  records  be  carried  on 
under  the  charge  of  the  Agent  at  each  of  the  Reserve  Banks,  as 
thus  suggested,  it  will  still  be  desirable  that  there  be  a centraliza- 
tion or  combination  of  results  under  direction  of  the  Board  at 
Washington  through  some  one  of  its  several  divisions  which  shall 
transmit  the  combined  information  to  the  other  bureaus;  while 
if  the  information  is  directly  compiled  at  Washington  in  the  first 
place  a local  receiving  mechanism  will  also  be  needed  in  each  bank. 

STATISTICAL  BUREAU. 

An  important  part  of  the  work  of  the  Federal  Reserve  Board 
will  be  found  in  the  making  of  thorough  and  satisfactory  analyses 
of  data  relating  to  bank  operations  in  different  parts  of  the  coun- 
try. These  analyses  will  be  necessary  both  from  a scientific,  and 
a practical  banking,  standpoint.  They  should  include  careful  com- 
pilations of  figures  designed  to  show  the  actual  operations  under 
each  section  of  the  reserve  act,  changes  in  the  outstanding  cur- 
rency circulation,  fluctuations  in  the  specie  stock  of  the  several 
reserve  banks  and  of  the  system  as  a whole,  variations  in  the  con- 
ditions of  domestic  and  foreign  exchange,  and  a variety  of  other 
items.  While  it  is  undoubtedly  true  that  experience  in  the  man- 
agement of  the  system  will  materially  modify  any  plan  for  the 
collection  of  such  statistics  and  for  the  making-  of  analyses  of  the 
kinds  already  indicated,  it  will  be  desirable  to  start  with  a complete 
and  thorough  basis  for  classifying  the  various  data  collected  and 
for  presenting-  the  net  results  in  an  easily  comprehensible  form. 
Indeed  it  will  be  only  by  this  means  that  the  subsequent  develop- 
ment of  the  statistical  analyses  along  lines  closely  adapted  to 
the  peculiarities  of  the  system  itself  will  be  practicable.  It  has 
therefore  been  deemed  wise  to  present  the  outline  for  a statistical 
bureau  to  be  organized  under  the  direction  of  the  board  at  Wash- 
ington. Such  ah  outline  has  been  prepared  under  the  direction  of 
the  committee  by  Mr.  Ludwig  Bendix  of  New  York  City,  and  is 
presented  in  Appendix  III  of  this  report. 

BONDING  OF  AGENTS. 

The  Federal  Reserve  act  provides  in  section  11,  paragraph  1, 
that: 

“The  Federal  Reserve  Board  shall  be  authorized  and  empow- 
ered . . . 

“(i)  To  require  bonds  of  Federal  reserve  agents  to  make  regula- 
tions for  the  safeguarding  of  all  collateral  bonds,  Federal  reserve 
notes,  money,  or  property  of  any  kind  deposited  in  the  hands  of  such 
agents,  and  said  board  shall  perform  the  duties,  functions,  or  ser- 
vices specified  in  this  act,  and  make  all  rules  and  regulations  neces- 
sary to  enable  said  board  effectively  to  perform  the  same.” 

With  reference  to  the  first  provision  in  this  section,  namely,  that 
authorizing-  the  Federal  Reserve  Board  to  “require  bonds  of  Federal 
reserve  agents”  (the  Organization  Committee  being  presumed  to 
exercise  the  same  functions  as  the  Federal  Reserve  Board  under 
section  2 of  the  act),  it  is  suggested  that  three  questions  arise: 


39 


1.  The  amount  of  the  bonds  to  be  given  by  Federal  reserve 
agents. 

2.  The  nature  and  form  of  the  bonds  to  be  furnished  by  them. 

3.  The  question  whether  such  bonds  shall  be  separate  and 
applicable  only  to  the  reserve  agents  or  whether  a “blanket  bond” 
covering  all  employees  and  officers  of  the  Federal  reserve  bank  and 
including  the  reserve  agent  with  others,  should  be  permitted. 

In  view  of  the  fact  that  the  Federal  reserve  agent  is  distinctly 
a Government  officer,  although  paid  by  the  bank  to  which  he  is 
accredited,  and  in  view  of  the  fact  that  his  responsibilities  are  to 
the  Federal  Reserve  Board  primarily,  rather  than  to  the  bank  itself, 
it  is  recommended  that  each  and  every  Federal  reserve  agent  be 
called  upon  to  give  a separate  bond  for  himself  and  his  own  staff, 
and  that  he  be  not  included  in  the  blanket  bond,  if  any,  which  may 
be  written  for  the  protection  of  all  other  officers  and  employees  of 
the  bank  at  large.  His  bond  would  thus  cover  merely  his  own  lia- 
bility and  that  of  the  subordinates  under  him  in  his  own  office. 

The  question  of  form  of  bond  has  formed  the  subject  of  careful 
inquiry,  and  it  is  believed  that  the  form  employed  by  the  American 
Bankers’  Association,  and  recommended  by  them  for  general  use,  is 
the  best  that  can  be  employed  under  the  circumstances. 

With  reference  to  the  amount  of  the  bond  to  be  given  by  Federal 
reserve  agents,  considerable  difference  of  opinion  has  been  encoun- 
tered, and  as  a result,  consultations  have  been  had  with  the  officers 
of  some  of  the  principal  bonding  companies.  As  a result  of  the 
investigation  thus  had  and  the  advice  furnished,  it  is  recommended 
that  the  bonds  of  Federal  reserve  agents  shall  not  fall  below  a mini- 
mum of  $100,000,  and  that  they  shall  vary  according  to  the  activity 
and  resources  of  the  reserve  bank  to  which  each  such  agent  is  ac- 
credited, probably  not  exceeding  $250,000  in  any  case. 

DOMESTIC  BRANCHES. 

The  Federal  Reserve  Act  contains  the  following  provisions 
(section  3)  with  reference  to  branch  offices: 

Section  3.  Each  Federal  Reserve  Bank  shall  establish 
branch  banks  within  the  Federal  Reserve  district  in  which  it 
is  located  and  may  do  so  in  the  district  of  any  Federal  Re- 
serve bank  which  may  have  been  suspended.  Such  branches 
shall  be  operated  by  a board  of  directors  under  rules  and 
regulations  approved  by  the  Federal  Reserve  Board.  Direc- 
tors of  branch  banks  shall  possess  the  same  qualifications  as 
directors  of  the  Federal  reserve  banks.  Four  of  said  direc- 
tors shall  be  selected  by  the  reserve  bank  and  three  by  the 
Federal  Reserve  Board,  and  they  shall  hold  office  during  the 
pleasure,  respectively,  of  the  parent  bank  and  the  Federal 
Reserve  Board.  The  reserve  bank  shall  designate  one  of  the 
directors  as  manager. 

It  will  be  observed  that  this  section  is  expressed  in  such 
broad  and  general  terms  as  to  leave  in  the  hands  of  the  Federal 


Reserve  Board  and  of  the  Organization  Committee  at  the  outset, 
very  large  powers  with  respect  to  branches.  It  will  be  possible 
practically  to  prescribe  the  conditions  under  which  such  branches 
will  operate,  subject  only  to  the  general  limitations  as  to  direc- 
tors laid  down  in  the  section  as  above  quoted. 

Two  methods  of  dealing  with  these  branches  suggest  them- 
selves: 

1.  The  establishment  of  a completely  organized  banking 
house  acting  as  a branch  of  the  reserve  bank  of  the  district 
in  each  place  where  a branch  may  have  been  determined  upon. 

2.  The  establishment  of  a local  office  only  without  bank- 
ing machinery  and  equipped  merely  with  a limited  clerical 
organization  at  the  service  of  the  board  of  directors  appointed 
as  above  provided  for. 

These  types  of  organization  may  be  considered  in  reverse 
order. 

If  it  be  determined  to  organize  simply  a local  office  the 
board  of  directors  of  the  branch  so-called  would  necessarily 
amount  to  nothing  more  than  a sub-committee  whose  functions 
would  be  those  of  ascertaining  the  character  of  the  paper 
offered  for  rediscount  by  the  banks  of  the  community,  certifying 
to  its  desirability,  or  disapproving  it  as  the  case  might  be,  and 
then  transmitting  the  paper  for  actual  rediscount  to  the  reserve 
bank  of  the  district.  This  plan  would  have  the  advantage  of 
avoiding  the  outlay  necessitated  by  the  organization  of  a com- 
plete branch  and  would  also  eliminate  all  necessity  for  estab- 
lishing a system  of  accounting  in  the  branch  which  should  fit 
into  the  accounting  system  of  the  reserve  bank  of  the  district. 
It  would  also  eliminate  all  question  of  necessity  for  a readjust- 
ment of  the  clearing  system.  On  the  other  hand  the  question 
may  be  raised  whether  so  simple  a type  of  organization  would 
satisfy  the  demands  of  the  community  in  which  the  branch 
was  located  and  would  supply  a sufficient  addition  to  the 
mechanism  of  the  reserve  bank  to  warrant  establishing  it.  Its 
function  would  obviously  be  only  that  of  a credit  committee 
passing  upon  particular  paper.  If  this  plan  should  be  resorted 
to,  it  is  suggested  that  the  only  records  required  by  the  branch 
would  be  those  relating  to  offerings  of  paper. 

On  the  other  hand,  if  a full-fledged  bank  should  be  estab- 
lished at  each  branch  point,  it  is  believed  that  the  following 
questions  would  have  to  be  definitely  considered  in  connection 
with  the  matter: 

1.  Relation  of  branch  accounting  to  accounting  of  district 
reserve  bank. 

2.  Relation  of  method  of  handling  checks  and  transit  items 
to  corresponding  methods  in  district  bank. 

3.  Area  or  territory  to  be  assigned  to  branch  as  special  or 
peculiar  to  it,  i.  e.,  extent  of  sub-district  within  which  such 
branch  would  be  located. 

4.  Internal  organization  of  branch. 

5.  Capitalization,  if  any,  to  be  assigned  to  the  branch. 


41 


Assuming  that  branches  were  to  be  created  on  this  plan  at 
the  outset,  it  is  suggested  that  in  every  particular  the  regulations 
recommended  in  this  report  with  respect  to  the  management 
of  a district  reserve  bank  should  be  applied  in  the  conduct 
of  the  branch,  in  so  far  as  practicable.  At  certain  points,  how- 
ever, it  will  not  be  desirable  to  develop  a full-fledged  organi- 
zation in  the  branch.  The  question  then  arises  precisely  how 
far  the  organization  should  go  and  at  what  point  reductions 
or  curtailments  have  to  be  made. 

It  is  recommended  that  in  the  event  of  the  establishment 
of  such  branches  they  be  assigned  a proportionate  capitalization 
based  upon  the  capitalization  and  surplus  of  the  member  banks 
included  within  the  territory  assigned  to  the  branch.  This, 
however,  should  be  only  a tentative  matter  and  such  assignment 
of  resources  should  be  merely  to  bridge  over  the  period  during 
which  it  is  found  from  experience  about  what  amount  of  paper 
will  on  the  average  be  presented  by  the  banks  in  each  branch 
district.  When  sufficient  experience  has  been  had  to  determine 
this  point,  the  resources  to  be  employed  should  be  distributed 
among  the  branches  in  proportion  to  the  quantity  of  paper 
presented  on  the  average  by  the  member  bank  in  each  such 
branch  district.  It  is  recommended  further  that  the  parent 
bank  of  the  district  shall  in  every  case  retain  for  itself  a 
substantial  portion  of  the  district  as  a territory  from  which 
paper  shall  be  directly  presented  for  rediscount.  This  would 
mean  simply  that  the  branch  districts  would  be  established 
whenever  there  was  a special  need  for  them  in  a particular 
part  of  a district  which  presented  a clear-cut  independent  trad- 
ing area  whose  territory  was  an  economic  unit  and  wThose 
member  banks  naturally  stood  in  close  relationship  to  one 
another.  The  suggestion  also  amounts  to  a rejection  of  any 
plan  for  subdividing  a district  completely  into  branch  areas 
while  the  district  reserve  bank  itself  exercised  no  distinct  bank- 
ing functions  except  those  of  oversight.  It  is  believed  that  this 
latter  plan  would  not  be  desirable,  but  that  in  every  district 
there  should  be  a strong  independent  reserve  bank  organiza- 
tion performing  actual  banking  functions  and  directly  redis- 
counting the  paper  of  a considerable  number  of  the  member 
banks  included  within  such  district. 

Whenever  a branch  is  established  with  a banking  house 
of  its  own,  actual  banking  machinery  and  a board  of  directors, 
as  provided  by  the  Federal  Reserve  Act,  it  is  recommended 
that  it  be  required  to  install  a system  of  accounting  precisely 
similar  to  that  prescribed  by  regulation  for  the  Federal  reserve 
banks  themselves  and  that  it  be  permitted  to  vary  from  the 
system  laid  down  for  such  reserve  banks  only  at  those  points 
where  the  maintenance  of  certain  records  is  rendered  unnec- 
essary by  reason  of  the  fact  that  the  branch  does  not  perform 
the  functions  to  which  such  records  relate. 


42 


BY-LAWS. 


The  following  suggested  outline  of  by-laws  will  afford  further 
detailed  data  concerning  the  internal  organization  requiring  to 
be  perfected  in  each  branch: 

BY-LAWS 

of 

FEDERAL  RESERVE  BANK  OF  

BRANCH 

of 

Federal  Reserve  Bank  of  

Established  by  it  191.  .. 

ARTICLE  I. 

Directors. 

Section  1.  Number  and  Quorum. — The  number  of  directors 
shall  be  seven.  A majority  of  the  directors  shall  constitute  a 
quorum. 

Section  2.  Meetings. — There  shall  be  a stated  meeting  of 
the  board  every  Wednesday  at  ....  o’clock  A.  M.,  or,  if  that 
day  be  a holiday,  on  the  first  preceding  day  not  a holiday. 

The  chairman  of  the  board  shall  be  empowered  to  call  a 
special  meeting  at  any  time,  or  upon  the  written  request  of 
any  two  directors  or  whenever  requested  so  to  do  by  the 
manager,  or  by  the  Federal  Reserve  Bank  of  the  district. 

Section  3.  Powers. — The  board  of  directors  shall  annually 
submit  for  approval  to  the  parent  bank  a schedule  of  com- 
pensation and  duties  of  officers,  clerks,  and  employees  of  the 
branch. 

Section  4.  Order  of  Business. — The  following  shall  be  the 
order  of  business  at  each  meeting  of  the  board: 

(1)  Reading  or  inspection  of  minutes  of  the  last 

regular  meeting. 

(2)  Report  of  the  manager,  including  information 

concerning  banking  and  business  conditions 
in  the  district,  as  well  as  detailed  summary 
of  all  business  transacted  since  last  regular 
meeting  and  statement  of  present  condition, 
the  latter  to  include: 

(a)  Statement  of  all  loans,  rediscounts,  invest- 

ments and  purchases: 

(b)  All  official  correspondence  received  from 

the  parent  bank. 

(3)  Committee  reports; 

(4)  Unfinished  business; 

(5)  Approval  of  report  and  recommendations  to 

parent  bank  (duplicate  to  be  sent  to  Federal 
Reserve  Board ) ; 

(6)  New  business. 


43 


ARTICLE  II. 

Discount  Committee. 

Section  1.  How  constituted. — There  shall  be  a discount  com- 
mittee consisting-  of  the  manager,  the  chairman  of  the  board, 
and  one  director  of  the  class  appointed  by  the  parent  bank. 
Such  director  shall  be  elected  by  the  board  to  serve  for  a 
period  not  to  exceed  one  month,  and  his  successors  shall  be 
chosen  in  rotation  until  each  member  of  his  class  shall  have 
served  or  shall  have  been  given  an  opportunity  to  serve.  The 
board  shall  elect  each  month  an  alternate  for  service  on  the 
discount  committee,  who  shall  be  authorized  to  act  in  the  ab- 
sence or  disability  of  the  member  first  chosen. 

Section  2.  Minutes. — The  discount  committee  shall  cause  to 
be  kept  minutes  of  all  meetings  held  by  it,  which  shall  be  read 
and  approved  by  members  of  the  board  at  the  next  succeeding 
meeting.  A copy  of  such  minutes  shall  be  promptly  sent  to 
the  parent  bank. 

Section  3.  Powers. — Subject  to  the  rules  and  regulations  of 
the  board  of  directors  of  the  parent  bank,  the  discount  com- 
mittee shall  be  vested  with  the  following  powers: 

(1)  To  pass  upon  all  commercial  paper  submitted 

for  discount. 

( 2 ) To  suggest  open  market  transactions  to  the 

parent  bank; 

(3)  To  apply  through  the  Federal  Reserve  Bank  of 

the  district  for  such  Federal  reserve  notes 
as  may  be  necessary  for  the  general  require- 
ments of  the  branch. 

ARTICLE  III. 

Officers. 

Section  1.  The  officers  to  be  chosen  by  the  board  of  direc- 
tors shall  be  a manager,  who  shall  be  one  of  their  number, 
a vice-manager*  and  such  other  officers  as  the  board  may 
from  time  to  time  deem  necessary.  They  shall  hold  office 
during  the  pleasure  of  the  board. 

Section  2.  Chairman. — The  chairman  of  the  board  shall  be 
chosen  by  the  Federal  Reserve  Board  from  the  directors  ap- 
pointed by  said  Board.  He  shall  preside  at  all  meetings  of 
the  board.  He  shall,  together  with  the  officers  of  the  bank, 
have  supervision  of  all  credit  records  and  data  concerning 
member  banks  and  borrowers  which  may  be  compiled  from 
reports  and  examinations  of  such  banks.  All  reports  and  state- 
ments made  to  the  parent  bank  shall  be  prepared  under  the 
general  direction  of  the  chairman  and  copies  thereof  shall  be 
sent  directly  to  the  Federal  Reserve  Board. 

Section  3.  Vice-Chairman. — In  the  absence  or  disability  of 
the  chairman,  his  powers  shall  be  exercised  and  his  duties 

*The  number  of  vice-managers  will  depend  upon  the  size 
of  the  branch  and  the  character  of  its  work. 


44 


performed  by  the  vice-chairman,  who  shall  be  designated  by 
the  chairman  or,  in  default  of  such  designation,  by  the  manager, 
from  the  directors  appointed  by  the  Federal  Reserve  Board. 

Section  4.  Manager. — The  manager  shall  have  general 

charge  of  the  branch  and  shall  preside  at  all  meetings  of  the 
discount  committee,  subject,  however,  to  such  rules  and  regu- 
lations as  may  be  incorporated  herein  or  from  time  to  time 
promulgated  by  the  board  of  directors  of  the  branch  or  of 
the  parent  bank. 

In  all  cases  where  the  duties  of  subordinate  officers  and 
agents  of  the  branch  are  not  specifically  prescribed  by  the 
by-laws  or  by  the  board  of  directors  of  the  branch  or  the 
parent  bank,  they  shall  be  the  duties  specified  by  and  instruc- 
tions of  the  manager.  The  manager  may,  with  or  without  the 
advice  of  the  board  of  the  branch,  suspend  or  remove  any 
employee  of  the  branch,  subject,  however,  to  a hearing  before 
said  board. 

Section  5.  The  Vice-Manager. — In  case  of  the  absence  or 
disability  of  the  manager,  his  powers  shall  be  exercised  and  his 
duties  discharged  by  the  vice-manager.  In  the  absence  or 
disability  of  both,  the  board  of  directors  shall,  by  a majority 
vote  of  the  directors  present,  appoint  a director  manager 
pro  tern. 

The  vice-manager  shall  have  charge  of  all  moneys  received 
and  paid  out  on  account  of  the  branch  and  shall  examine 
and  countersign  all  checks  for  the  payment  of  money  signed 
by  the  manager.  He  shall,  jointly  with  the  manager,  have 
custody  of  all  investments  and  collateral  held  by  the  branch. 
He  shall  keep  the  minutes  of  all  board  meetings  and  of  all 
committees  of  the  board. 

In  case  of  the  absence  or  disability  of  the  vice-manager, 
or  whenever  occasion  may  require  it,  the  manager  shall  ap- 
point such  director  or  employee  of  the  branch  as  he  may  deem 
proper,  vice-manager  pro  tern. 

ARTICLE  IV. 

Information. 

Section  1.  All  persons  employed  by  the  branch  shall  keep 
inviolate  its  business  affairs  and  concerns,  and  shall  not  disclose 
or  divulge  the  same  to  any  unauthorized  person  whomsoever. 
Any  employee  who  shall  give  information  contrary  to  this 
by-law  shall  be  liable  to  immediate  dismissal. 

Section  2.  The  action  or  policy  of  the  board  shall  not  be 
expressed  by  any  individual  member,  but  by  its  duly  constituted 
officers  after  formal  action  by  the  whole  board  and  under  rules 
and  regulations  prescribed  by  the  parent  bank. 

Section  3.  For  the  information  of  member  banks  and  the 
public,  there  shall  be  maintained  in  the  office  of  the  manager 
a bulletin  board,  upon  which  shall  appear  the  current  rates 
of  discount  established  by  the  parent  bank  and  such  other 
information  as  it  may  deem  necessary  to  publish. 


45 


FOREIGN  BRANCHES. 


The  power  to  establish  foreign  branches  is  broadly  conveyed 
in  the  Federal  reserve  act,  which  includes  authority  covering 
not  only  the  creation  of  such  branches,  but  also  the  establish- 
ment of  agencies,  the  appointment  of  correspondents,  etc.  The 
question,  however,  whether  or  not  to  create  such  branches 
rests  upon  a somewhat  different  basis  from  that  which  relates 
to  the  establishment  of  domestic  branches. 

With  reference  to  operations  in  foreign  countries  it  is  to 
be  expected  that  as  the  reserve  system  develops  these  opera- 
tions will  become  extensive  and  important.  They  should  be 
fully  provided  for  by  a plan  which  will  assure  absolute  efficiency 
in  the  handling  of  the  functions  of  reserve  banks  abroad.  That 
at  the  start  it  may  be  desirable  to  await  the  definite  organiza- 
tion of  the  reserve  institutions  is  quite  probable,  but  before 
many  months  the  management  of  the  business  abroad  must 
be  seriously  taken  in  hand.  Inasmuch  as  the  approval  of  the 
Federal  Reserve  Board  is  requisite  to  the  establishment  of 
foreign  branches,  it  is  evident  that  the  board  will  have  full 
authority  in  the  matter. 

The  first  point  which,  it  is  believed,  calls  for  careful  con- 
sideration is  the  number  of  branches  of  reserve  banks  which 
shall  be  independent  of  one  another.  Plainly  the  provisions 
of  the  law  are  such  that  if  the  Reserve  Board  should  approve 
of  such  a course  each  and  every  one  of  the  several  reserve 
banks  might  establish  independent  branches  in  foreign  centers. 
The  conceivable  result  of  such  action  would  be  the  establish- 
ment of  a number  of  branches,  one  to  each  reserve  bank, 
equal  to  the  number  of  reserve  banks,  in  every  important 
foreign  center.  This,  it  is  believed,  would  be  unwise.  From 
the  standpoint  of  the  foreigner  the  reserve  system  should  be 
organized  as  a unit,  while  in  controlling  the  flow  of  specie 
to  and  from  the  United  States  it  should  act  as  a unit  with 
a single  and  uniform  policy  and  without  competition  within 
itself.  These  requirements  could  be  fulfilled  best,  it  is  be- 
lieved, by  requiring  the  reserve  banks  to  join  in  designating 
a common  agent  or  to  join  in  creating  a joint  branch  at  each 
foreign  center  where  it  is  believed  that  such  representation  is 
needful  or  desired.  If  it  should  appear  that  some  of  the  reserve 
banks  do  not  care  to  have  such  representation  abroad,  their  co- 
operation could  be  waived,  the  whole  matter  being  placed  upon 
a voluntary  basis.  But  if  they  find  that  they  want  such  repre- 
sentation, then  they  should  be  required  to  co-operate  in  estab- 
lishing and  bearing  the  expenses  of  the  branch  existing  at  the 
point  where  the  representation  is  desired.  This  naturally 
necessitates  a plan  of  dividing  the  expenses  of  the  branches 
or  agencies  abroad  between  the  Federal  reserve  banks.  It 
is  recommended  that  the  following  plan  shall  be  in  substance 
followed: 

1.  Whenever  a Federal  reserve  bank  desires  to  establish  a 


46 


branch  or  agency  in  a foreign  country  it  shall  make  appli- 
cation to  the  Federal  Reserve  Board  for  permission  to  do  so 
and  in  case  such  permission  is  granted  it  shall  be  allowed  to 
establish  the  branch  or  agency  under  conditions  of  organization 
conforming  to  the  principles  laid  down  in  the  general  pro- 
visions that  may  be  adopted  with  regard  to  branches. 

2.  If  any  other  reserve  bank  should  subsequently  desire  to 
secure  representation  in  the  same  place  at  which  such  branch 
or  agency  may  already  exist  it  shall  be  required  to  select  the 
same  agent,  or  if  a branch  has  actually  been  established  it 
shall  be  permitted  to  join  in  the  operation  of  the  branch,  bear- 
ing a share  of  the  expense  dependent  upon  the  percentage  of 
total  operations  undertaken  for  its  account  as  compared  with 
the  aggregate  operations  of  the  branch. 

3.  The  personnel  of  the  branch  organization  shall  continue 
as  first  established  by  the  reserve  bank  which  created  the 
branch,  but  as  places  fall  vacant  they  shall  be  filled  upon 
the  nomination  of  the  reserve  bank  subsequently  joining  in 
the  operation  of  the  branch  in  a proportion  corresponding  to 
its  payment  of  expenses. 

4.  Should  other  reserve  banks  desire  to  join  in  the  opera- 
tions of  the  branch  they  may  do  so  upon  a basis  of  division 
of  expenses  based  upon  the  principles  already  laid  down  above. 

5.  Should  the  Federal  reserve  banks  subsequently  desiring 
representation  (after  the  establishment  of  the  branch  by  one 
such  bank)  prefer  to  have  the  branch  already  existing  act 
as  agent  for  them  they  may  do  so,  and  in  that  event  the 
reserve  bank  or  banks  actually  co-operating  in  the  conduct 
of  the  branch  shall  charge  for  their  services  a sum  to  be  deter- 
mined at  the  end  of  each  half  year  and  dependent  upon  the 
proportion  borne  by  the  operations  of  the  bank  or  banks  desig- 
nating the  branch  as  agent,  to  the  total  operations  of  such 
branch. 

6.  Whenever  a foreign  branch  is  organized  a specified  sum 
shall  be  assigned  to  it  as  a basis  for  its  operations,  such  sum 
to  be  determined  in  each  and  every  case  by  consultation  be- 
tween the  Reserve  Board,  or  the  Organization  Committee,  if 
the  task  is  undertaken  while  the  system  is  in  its  initial  stages. 
Other  reserve  banks  which  subsequently  participate  in  the 
operation  of  the  branch  shall  assign  to  it  a sum  of  working 
capital  to  be  determined  in  the  same  way. 

7.  In  the  event  that  several  reserve  banks  desire  at  the 
outset  to  join  in  the  establishment  of  a branch  at  a designated 
foreign  center,  the  total  working  capital  to  be  set  apart  will 
be  determined  as  above  indicated  and  shall  be  divided  among 
the  several  reserve  banks  in  proportion  to  their  capitalization. 

8.  The  accounting  records  of  each  such  foreign  branch  shall 
be  the  same  as  those  prescribed  for  domestic  branches,  except 
that  the  reserve  banks  participating  in  the  operation  of  the 
branch  shall  be  regarded  as  joint  partners. 


47 


RELATIONS  BETWEEN  BANKS. 

In  discussing  the  relations  between  members  of  the  Federal 
reserve  system,  attention  must  be  devoted  to  three  phases  of  the 
question : 

1.  Relations  between  the  Federal  reserve  banks  themselves. 

2.  Relations  between  member  banks  in  each  district  and  mem- 
ber banks  in  different  districts. 

3.  Relations  between  member  banks  and  their  own  Federal 
reserve  banks. 

In  surveying  these  distinct  elements  of  the  problem,  it  is 
deemed  best  to  consider  first  of  all  a matter  which  involves  por- 
tions of  the  question  referred  to  under  the  first  head  above  and 
of  that  referred  to  under  the  third  head.  This  is  the  clearing  of 
checks.  It  is  believed  that  the  most  important  problem  involving 
these  relations  between  the  banks  in  normal  times  will  be  that  of 
clearing  the  items  drawn  upon  the  reserve  banks  by  their  member 
banks  and  those  drawn  upon  the  individual  member  banks  by  their 
depositors.  If  this  clearing  process  is  satisfactorily  and  effectively 
cari’ied  out,  it  will  profoundly  modify  the  relationships  now  exist- 
ing between  banks  and  will  have  an  important  influence  in  re- 
shaping the  operations  of  present  clearing  houses,  transforming 
ultimately  the  functions  of  these  clearing  houses  and  changing  the 
degree  of  their  significance  from  the  standpoint  both  of  their 
members  and  of  outside  institutions. 

CLEARING  SYSTEM. 

The  provisions  of  the  Federal  Reserve  Act  with  respect  to  the 
introduction  of  a system  of  clearings  are  found  in  Section  16,  where 
it  is  provided  that: 

"Every  Federal  reserve  bank  shall  receive  on  deposit  at 
par  from  member  banks  or  from  Federal  reserve  banks 
checks  and  drafts  drawn  upon  any  of  its  depositors,  and 
when  remitted  by  a Federal  reserve  bank,  checks  and  drafts 
drawn  by  any  depositor  in  any  other  Federal  reserve  bank 
or  member  bank  upon  funds  to  the  credit  of  said  depositor 
in  said  reserve  bank  or  member  bank.  Nothing  herein  con- 
tained shall  be  construed  as  prohibiting  a member  bank  from 
charging  its  actual  expense  incurred  in  collecting  and  re- 
mitting funds,  or  for  exchange  sold  to  its  patrons.  The  Fed- 
eral Reserve  Bank  shall,  by  rule,  fix  the  charges  to  be  col- 
lected by  the  member  banks  from  its  patrons  whose  checks 
are  cleared  through  the  Federal  reserve  bank  and  the  charge 
which  may  be  imposed  for  the  service  of  clearing  or  collec- 
tion rendered  by  the  Federal  reserve  bank. 

"The  Federal  Reserve  Board  shall  make  and  promulgate 
from  time  to  time  regulations  governing  the  transfer  of 
funds  and  charges  therefor  among  Federal  reserve  banks 
and  their  branches,  and  may  at  its  discretion  exercise  the 
functions  of  a clearing  house  for  such  Federal  reserve  banks, 
or  may  designate  a Federal  reserve  bank  to  exercise  such 


48 


functions,  and  may  also  require  each  such  bank  to  exercise 
the  functions  of  a clearing  house  for  its  member  banks.” 

It  is  evident  that  this  provision  distinctly  contemplates  two 
classes  of  work : 

(a)  A clearing-  system  providing-  for  the  clearing-  of  items 
among  member  banks  which  are  stockholders  and  depositors  in 
any  Federal  reserve  bank. 

(b)  A clearing  system  which  shall  provide  for  clearing  the 
transactions  of  Federal  reserve  banks  among  themselves. 

It  is  strongly  believed  and  recommended  that  a complete  and 
thorough  clearing  system  shall  be  inaugurated  by  every  Federal 
reserve  bank  at  the  earliest  possible  moment  consistent  with  suc- 
cess. This  system  should  further  be  continued  and  extended  as 
rapidly  as  is  reasonably  possible  until  it  extends  to  all  classes  of 
operations  and  provides  for  the  clearing  of  items  drawn  on  both 
member  and  non-member  banks.  The  facilities  of  the  reserve 
banks  should  be  used  both  locally  and  for  out-of-town  checks  in 
the  broadest  possible  sense  and  under  conditions  which  will  place 
the  member  banks  upon  a satisfactory  basis  of  competition  with 
non -members  while  giving-  to  the  customers  of  member  banks 
the  advantage  of  a system  of  par  collection  wherever  possible 
and  of  collection  at  cost  wherever  charge  must  be  made.  Undoubt- 
edly experience  will  show  some  necessary  changes  both  of  method 
and  of  rates  of  charge  from  the  plan  herewith  recommended, 
but  it  is  believed  that  the  basis  of  a satisfactory  system  is  herewith 
afforded  and  that  no  material  alterations  will  be  subsequently 
necessary.  Having  in  mind  the  fact  that  the  banks  cannot  perform 
their  full  functions  in  this  respect  at  the  very  outset,  it  is,  how- 
ever, recommended  that  they  start  only  with  a partial  system  of 
clearings,  subsequently  extending-  this  as  they  become  able  to  do  so. 

An  analysis  of  the  law  shows  that  it  is  the  intent  to  readjust 
the  domestic  exchange  machinery  of  the  present  banking  system 
to  conform  with  practices  and  regulations  that  the  experience  of 
clearing  houses  have  demonstrated  to  be  the  most  efficient.  There- 
fore, in  drawing  up  forms  and  regulations  to  govern  the  operations 
of  the  Federal  reserve  banks,  the  policy  should  be  to  adopt  so  far 
as  possible  clearing  house  principles  as  a model.  Wherever,  in  the 
plan  to  be  proposed,  it  may  seem  at  first  glance  that  a proposed 
method  of  procedure  is  not  specifically  authorized  in  the  bill,  the 
warrant  for  such  proposition  is  contained  in  the  phrase  “functions 
of  a clearing  house,”  and  nothing  herein  suggested  will  be  found 
to  do  violence  either  to  clearing  house  principles  or  practices. 

It  is  one  of  the  primary  functions  of  banking  and  the  purpose 
of  all  clearing  houses  to  make  full  use  of  the  “clearing  principle,” 
which  is  the  offsetting  of  debits  with  credits,  to  effect  settlements 
by  book  transfers,  and  to  use  such  credit  instruments  as  checks 
and  drafts,  thus  reducing  to  a minimum  the  handling  of  actual 
currency.  The  primary  object  of  the  plan  here  presented  is  to  use 
the  machinery  of  the  Federal  reserve  system  to  make  the  enor- 
mous domestic  exchange  business  of  the  country  clear  itself,  the 


49 


balances  of  the  entire  nation  being  finally  focussed  and  cleared 
by  a simple  operation  on  the  books  of  the  Federal  Reserve 
Clearing  House. 

Each  Federal  reserve  bank  should  be  governed  by  uniform 
regulations  with  respect  to  domestic  exchange  functions  since 
each  such  bank  is  a part  of  the  whole  system  of  clearing. 
These  regulations  apply  to  forms,  advices,  accounting  systems 
and  organization  of  departments  and  conform  to  the  rules 
applied  by  all  well-conducted  clearing  house  associations.  They 
will  be  grouped  for  convenience  of  treatment  into  three 
divisions: 

( 1 ) The  relations  between  the  Federal  reserve 

banks  and  the  member  banks  in  the  same  city. 

( 2 ) The  relations  between  the  Federal  reserve 

banks  and  their  members  outside  the  city. 

(3)  The  relations  between  the  Federal  reserve 

banks  themselves. 

RELAl  IONS  BETWEEN  THE  FEDERAL  RESERVE  BANKS 
AND  THEIR  MEMBERS  IN  THE  SAME  CITY. 

The  Federal  Reserve  Banks  may  if  thought  best  co-operate  with 
the  other  banks  of  cities  where  they  may  be  located,  first,  by 
joining  the  local  clearing  house,  and  second,  by  providing  a 
means  of  settlement  of  clearing  house  balances  through  book 
transfers. 

Several  points  are  open  to  discussion  in  connection  with  plans  or 
regulations  governing  the  relations  between  the  Federal  reserve 
banks  and  their  members  located  in  the  same  city.  The  logical 
development  of  the  Reserve  Banks  will  ultimately  result  in 
their  assuming  the  functions  of  a clearing  house,  but  in  view 
of  the  policy  not  to  interfere  unnecessarily  with  present  prac- 
tices and  also  on  account  of  the  fact  that  nearly  all  clearing 
houses  are  composed  partly  of  non-member  banks,  it  is  recom- 
mended that  the  Federal  reserve  banks  shall  not  accept  local 
member  checks  on  deposit,  provided  such  checks  are  payable 
through  the  clearing  house,  until  such  time  as  it  will  be  possible 
for  the  bank  to  assume  all  the  functions  of  the  local  clearing 
house. 

The  Federal  reserve  banks  will  present  checks  on  outside 
member  banks  and  outlying  local  member  banks  through  the  mails, 
but  it  would  be  more  economical  and  convenient  to  present  city 
member  checks  through  the  clearing  house.  A question  here  arises 
as  to  whether  the  Federal  reserve  banks  should  be  members  "both 
sides,”  that  is:  receiving,  as  well  as  presenting,  checks  at  the  clear- 
ing house.  Were  the  existence  of  clearing  houses  where  the  Federal 
reserve  banks  are  located  to  be  considered  permanent,  or  were 
all  the  members  of  the  clearing  house  certain  to  be  members 
of  the  system,  then  it  would  seem  wise  to  recommend  that  the 


50 


reserve  Banks  should  “out-clear”  only,  but,  the  facts  being 
otherwise,  local  members  should  be  permitted  either  to  deposit 
drafts  on  the  Federal  reserve  banks  or  to  present  them  through 
the  Clearing  House.  As  to  the  deposit  of  member  checks  by 
local  banks,  it  is  recommended  that  a time  limit  be  set  by  each 
Federal  reserve  bank,  say  at  2 P.  M.,  after  which  no  items  of  less 
than  $1,000  of  any  kind  would  be  accepted  on  deposit.  This  rule 
will  be  found  necessary  to  prevent  the  clogging  of  the  internal 
machinery  of  the  banks,  which  would  delay  the  outgoing  mail.  Ex- 
perience in  large  city  banks  has  demonstrated  that  it  is  much 
easier  to  handle  large  volumes  of  checks  if  they  come  in  early  in 
the  day,  because  a given  number  of  checks  can  be  handled  with 
much  less  labor  and  chance  of  error  if  received  within  a fixed 
time  limit  than  the  same  number  of  items  can  be  handled  when 
spread  over  a longer  period.  The  bulk  of  all  checks  received 
by  business  men  come  by  morning  mails  and  the  individual 
depositors  in  member  banks  can  be  gradually  educated  to  make 
their  deposits  early. 

The  settlement  of  balances  resulting  from  clearing  house 
exchanges  must  be  adjusted  to  conform  with  the  fact  that  all 
members  of  clearing  houses  will  not  be  members  of  the  Federal 
Reserve  System.  Settlement  may  be  effected  by  one  of  the  fol- 
lowing methods: 

1.  Debtor  banks  will  give  their  drafts  on  the  Federal 
Reserve  Banks  to  the  manager  of  the  clearing  house,  non-mem- 
ber debtor  banks  paying  to  the  manager  funds  acceptable  for 
deposit  with  the  Reserve  Banks.  The  manager  of  the  clearing 
house  would  then  deposit  the  drafts  with  the  Reserve  Bank. 
The  Reserve  Bank  would  credit  such  deposits  to  a “clearing 
account”  which  would  be  subject  to  the  manager’s  check  in 
favor  of  creditor  banks.  The  rule  should  be  laid  down  that 
drafts  on  the  Federal  Reserve  Bank  given  to  member  creditor 
banks  should  be  deposited  and  not  cleared  through  the  next 
exchange. 

2.  Assuming  that  all  clearing  house  banks  are  members 
of  the  system,  the  manager  of  the  clearing  house  will  present 
to  the  Federal  Reserve  Agent  a memorandum  showing  debtor 
and  creditor  balances  which  may  then  be  settled  by  a transfer 
on  the  books  of  the  Federal  reserve  bank. 

If  it  should  occur  in  any  city  that  all  the  banks  are  mem- 
bers both  of  the  clearing  house  and  of  the  Federal  Reserve 
System,  and  the  clearing  house  be  continued,  it  would  be  practicable 
to  have  the  Federal  reserve  bank  “out  clear”  only. 

The  relationship,  therefore,  between  the  Federal  reserve 
banks  and  members  in  the  same  city  may  be  said  to  be  a local 
problem  which  may  be  adjusted  along  the  broad  lines  here 
suggested  without  in  any  way  interfering  with  the  policy  of 
uniformity  in  the  essential  features  of  regulation  affecting  the 
clearing  functions  of  Reserve  Banks. 


51 


In  general  matters  the  regulations  covering  the  accounts  of 
member  banks  will  apply  to  city  members  as  well  as  country 
members. 

THE  RELATIONS  BETWEEN  THE  FEDERAL  RESERVE 

BANKS  AND  THEIR  MEMBERS  OUTSIDE  THE  CITY. 

The  deposit  section  of  the  Federal  Reserve  Act  provides  that: 
"Any  Federal  Reserve  Bank  may  receive  from  any 
of  its  member  banks,  and  from  the  United  States, 
deposits  of  current  funds  in  lawful  money,  na- 
tional-bank notes,  Federal  reserve  notes,  or  checks 
and  drafts  upon  solvent  member  banks,  payable 
upon  presentation  . . .” 

Under  this  provision  the  following  elements  of  the  deposit 
process  will  be  as  follows: 

1.  Lawful  money,  national  bank  notes  and  Federal  reserve 
notes  are  to  be  deposited  as  such  deposits  are  now  made  in 
banks — that  is,  using  a regular  deposit  slip  bearing  the  name  and 
number  of  the  member  bank  and  the  items  to  be  separated  as  to 
kind  of  money  deposited.  No  checks  are  to  be  enclosed  with  deposits 
of  money. 

2.  In  receiving  checks  on  deposit,  the  Federal  reserve  banks 
assume  a service  for  their  members  which  unless  it  is  properly 
controlled  and  regulated  will  result  in  a serious  burden  and 
will  tax  the  resources  of  the  reserve  banks  to  the  utmost.  Care 
must  be  taken  that  the  work  be  reduced  to  a minimum  and 
that  the  member  banks  relieve  the  reserve  banks  as  far  as  is 
practicable. 

3.  A uniform  letter  of  remittance  or  deposit  should  be  used 
throughout.  Member  banks  will  divide  the  items  deposited  into 
those  payable  by  the  Federal  Reserve  Banks  and  those  payable 
by  other  banks  in  the  city  where  the  reserve  bank  is  located.  These 
items  may  be  placed  on  one  sheet  or  letter  in  separate  totals.  A dif- 
ferent sheet  or  letter  must  be  used  for  each  state  within  the  region 
or  district,  and  as  the  number  of  members  increases  such  states 
may  be  redivided  in  accordance  with  the  regulations  of  each 
reserve  bank. 

4.  Items  payable  in  other  Federal  reserve  districts  will  be 
separated  into  two  totals,  "inside”  and  "outside,”  and  the  outside 
items  will  be  grouped  as  to  states,  although  a single  total  will 
be  accepted  and  such  "outside”  items  may  be  placed  on  a single 
remittance  sheet. 

5.  With  each  deposit  of  checks  from  member  banks  there  is  to 
be  enclosed  a summary  sheet  giving  the  total  of  each  separate 
sheet  or  division  with  a grand  total  or  footing. 

6.  Opposite  each  item  in  the  entire  deposit,  the  member  bank 
should  designate  the  place  payable,  preferably  by  number.  Special 
instructions  such  as  “no  protest,”  "wire  non-payment,”  etc., 
should  be  covered  by  an  official  tag  or  slip  which  is  to  be  securely 
fastened  to  the  item  and  no  confirmation  of  such  instructions 


52 


shall  be  required  to  be  written  on  the  letter.  A distinctive  mark 
or  symbol  should  also  be  stamped  upon  each  such  check. 

7.  Each  item  deposited  shall  be  endorsed  by  the  member  bank 
with  a rubber  stamp  which  shall  bear  the  name  of  the  Federal 
reserve  bank  through  which  the  items  are  cleared,  the  date 
received  by  the  Federal  reserve  bank,  and  the  name  and  num- 
ber of  the  member  bank.  This  stamp,  when  used  by  the  mem- 
ber bank,  shall  be  considered  to  guarantee  all  previous  en- 
dorsements and  shall  read  as  follows: 

Cleared  through 

The  Federal  Reserve  Bank  of  N.  Y. 

August  1,  1914 
First  National  Bank 
50-36  Syracuse,  N.  Y.  50-36 

8.  All  items  deposited  by  member  banks  with  Federal  reserve 
banks  should  become  “reserve”  only  after  they  have  been  col- 
lected, that  is,  placed  in  the  possession  of  the  paying  bank,  and 
thus  chargeable  to  the  account  of  the  drawer.  They  may  be 
charged  by  member  banks  into  the  general  ledger  item  "Due  from 

Federal  Reserve  Bank  of  ” the  day  they  are  mailed,  but 

a memorandum  account  should  be  carried  by  the  member  bank  in 
which  this  item  is  to  be  divided  into  “transit  account”  and  "reserve 
account.”  Each  member  bank  shall  be  furnished  a time  sched- 
ule and  in  connection  therewith  shall  operate  a book  which 
may  be  designated  the  “Reserve  Maturity  Tickler.”  In  accord- 
ance with  the  time  schedule,  the  member  banks  will  post  the 
detail  amounts  according  to  the  divisions  mentioned  under  the 
dates  when  such  checks  may  be  credited  to  “transit  a/c”  and 
charged  to  “reserve  a/c.”  These  dates  in  every  case  will  be 
based  on  the  receipt  of  the  items  at  the  place  of  payment. 

An  alternative  plan  differing  in  theory  as  applied  to  reserves 
but  more  practical  and  simple  in  operation,  may  be  considered 
as  follows:  The  Federal  reserve  banks  will  charge  member  checks 

against  the  balance  of  such  members  upon  the  day  forwarded. 
This  would  reduce  the  amount  of  bookkeeping  necessary  and 
would  simplify  the  time  schedule  by  more  than  one-half.  On  the 
other  hand,  member  banks  would  be  apt  to  object  to  having  their 
reserves  thus  depleted  without  their  knowledge.  This  objection 
could  be  met  by  a concession  which  would  further  reduce  the 
accounting,  that  is,  by  allowing  member  banks  to  use  all  checks 
on  members  of  the  same  district  as  reserve  the  day  forwarded 
to  the  Federal  reserve  bank,  as  is  now  permitted  in  making  re- 
mittances to  reserve  agents. 

It  is  desirable  that  drafts  on  Federal  Reserve  banks  should  be 
acceptable  without  question  in  all  districts.  It  may  be  suggested, 
therefore,  that  such  drafts  be  deposited  in  a separate  total  together 
with  drafts  payable  by  the  Reserve  bank  where  deposited  to  be 
counted  as  reserve  by  the  member  bank  at  once,  or  if  the  al- 
ternative plan  outlined  in  the  preceding  paragraph  is  adopted. 


53 


r 


drafts  on  all  Federal  reserve  banks  could  be  included  in  the  totals 
of  checks  on  other  members  of  the  same  district. 

The  Federal  reserve  bank  will  credit  the  account  of  the 
member  banks  on  day  of  receipt  of  the  items,  such  account  to 
be  subject  to  draft.  The  reserve  bank  in  turn  will  use  a time 
schedule  corresponding  to  the  one  used  by  member  banks  and 
similarly  the  reserve  bank  will  charge  transit  account,  crediting 
such  account  and  charging  other  reserve  banks  as  hereafter 
provided.  If  any  member  bank  should  draw  below  its  col- 
lected funds,  such  draft  should  be  subject  to  a charge  based 
upon,  but  higher  than,  the  current  discount  rate  of  interest. 

In  Section  19  the  Act  provides  that  member  banks  may  check 
against  their  reserve  balances  with  Reserve  banks  “subject  to  such 
penalties  as  may  be  prescribed  by  the  Federal  Reserve  Board,’’ 
but  it  would  be  better  banking  to  induce  them  to  restore  their 
reserves  through  re-discounts. 

The  Federal  reserve  banks  will  receive  items  on  deposit 
until  2 P.  M.  each  day.  After  2 P.  M.  and  until  3 P.  M.  items 
of  $1,000,  and  over  only,  and  after  3 P.  M.  until  3:30  P.  M. 
items  over  $10,000  only,  after  which  all  items  received  will  be 
held  over  until  the  following  day  and  the  member  bank  so 
notified. 

The  time  of  day  and  amounts  here  specified  need  not  be  uniform 
for  each  Reserve  bank,  but  should  be  regulated  by  each  such 
bank  in  accordance  with  local  customs  and  geographical  position 
with  respect  to  transportation  and  mail  facilities. 

At  the  close  of  the  day’s  business  all  checks  on  member 
banks  will  be  forwarded  to  the  member  banks,  the  letter  bear- 
ing opposite  each  amount  the  endorsement  record  of  the  de- 
positing bank.  These  remittances  will  be  charged  by  the 
reserve  banks  in  “transit  account.”  On  the  following  day,  or  the 
day  of  receipt  by  the  member  banks,  the  accounts  of  the  mem- 
ber banks  will  be  charged  and  “transit  account”  will  be  credited. 

Attached  to  each  letter  from  the  reserve  bank  will  be  a per- 
forated slip  bearing  the  total  of  the  enclosure,  to  be  used  as  an 
acknowledgment  of  receipt.  The  slip  will  read:  “We  credit 


you  $ 


checks  on  this  bank  received  to-day 


(Signed) 


Cashier.” 


If  items  are  unpaid  they  are  to  be  returned  direct  by  the 
member  upon  whom  drawn  to  the  member  making  the  deposit 
with  the  Federal  reserve  bank  first  receiving  them,  and  upon 
receipt  of  advice  the  Federal  reserve  bank  will  credit  the  mem- 
ber bank  the  amounts  of  such  checks  returned  direct  and  charge 
the  accounts  of  members  to  whom  the  items  have  been  returned. 
If  such  unpaid  items  have  been  received  by  the  reserve  banks 
from  other  reserve  banks  they  will  be  returned  direct  in  the  same 
way  and  adjustment  made  between  the  reserve  banks  as  here- 
after provided.  Unpaid  items  which  have  been  deposited  by  the 


54 


U.  S.  Government  or  any  of  its  agents  will,  however,  be  returned 
in  every  case  to  the  reserve  banks  by  the  member  banks. 

Member  banks  should  be  encouraged  to  make  use  of  the 
Federal  reserve  banks  to  effect  settlement  with  one  another 
through  book  transfers.  The  reserve  banks  should  perform 
such  service  as  between  its  own  members  at  par  since  it  avoids 
the  use  of  drafts  and  also  does  not  reduce  the  loanable  funds 
ol’  the  reserve  bank.  Transfer  of  funds  by  members  for  the 
credit  of  members  of  other  districts  may  also  be  easily  arranged 
and  the  charges  therefor  will  be  discussed  under  a separate  heading 
in  this  report. 

Reserve  banks  will  also  send  to  member  banks  for  collection 
notes,  acceptances  and  such  paper  as  is  usually  classified  as 
“time  items,”  representing  the  matured  loans  and  discounts  of  the 
Federal  reserve  banks,  such  items,  if  unpaid,  to  be  returned  by 
member  banks  to  the  Federal  reserve  bank  owner,  with  proper 
advices. 

At  the  close  of  each  day's  business  the  Federal  reserve  banks 
will  mail  a statement  of  the  day's  transactions  to  each  member 
bank  other  than  which  no  acknowledgment  of  receipt  of  items, 
etc.,  will  be  required.  At  regular  intervals  the  balance  shown 
by  such  statement  as  of  a certain  day  will  be  reconciled  by 
the  member  bank  and  a report  made  to  the  reserve  bank. 

RELATIONS  BETWEEN  THE  FEDERAL  RESERVE  BANKS. 

“.  . . . or  solely  for  exchange  purposes,  (any  Fed- 
eral reserve  bank)  may  receive  from  other  Federal 
reserve  banks  deposits  of  current  funds  in  lawful 
money,  national-bank  notes,  or  checks  and  drafts 
upon  solvent  member  or  other  Federal  reserve 
banks,  payable  upon  presentation." 

“Every  Federal  reserve  bank  shall  receive  on  de- 
posit at  par  from  member  banks  or  from  Federal 
reserve  banks  checks  and  drafts  drawn  upon  any 
of  its  depositors,  and  when  remitted  by  a Federal 
reserve  bank,  checks  and  drafts  drawn  by  any  de- 
positor in  any  other  Federal  reserve  bank  or  mem- 
, ber  bank  upon  funds  to  the  credit  of  said  depositor 
in  said  reserve  bank  or  member  bank." 

As  between  the  Reserve  Banks,  there  will  be  five  different 
kinds  of  transactions.  (1),  the  exchange  of  checks  for  col- 
lection payable  in  their  respective  districts,  and  also  the  ex- 
change of  checks  and  drafts  on  one  another.  (2),  the  transfer 
of  funds  deposited  by  the  member  of  one  Bank  to  the  credit  of 
a member  of  another  Bank.  (3),  the  deposit  of  Federal  Re- 
serve notes  for  redemption  or  credit  as  provided  in  the  Act. 

“Whenever  Federal  reserve  notes  issued  through 
one  Federal  reserve  bank  shall  be  received  by  an- 
other Federal  reserve  bank  they  shall  be  promptly 
returned  for  credit  or  redemption  to  the  Federal 
55 


reserve  bank  through  which  they  were  originally 
issued.” 

(4),  the  deposit  of  other  funds,  such  as  national  bank  notes, 
or  lawful  money  which  the  Federal  reserve  banks  are  permitted 
to  deposit  with  one  another  for  exchange  purposes.  Such  shipments 
should  be  subject  to  the  request  of  the  Federal  reserve  bank  receiv- 
ing the  deposit.  (5),  the  collection  of  notes,  drafts  and  acceptances 
for  rediscount,  as  provided  in  Section  13,  which  may  be  payable 
in  a district  other  than  where  rediscounted. 

Checks  remitted  by  one  Federal  reserve  bank  to  another 
should  be  divided  as  to  inside  and  outside  items,  the  outside 
items  being  further  divided  as  to  states,  or  such  other  division  as 
has  been  provided  for  the  member  banks  depositing  with  Federal 
reserve  banks.  They  need  not  be  endorsed  by  the  Federal  reserve 
bank  remitting  or  by  the  reserve  bank  receiving  them. 

Each  Federal  reserve  bank  will  carry  a single  account  with 
every  other  reserve  bank.  Using  the  time  schedule  mentioned 
previously,  charges  and  credits  of  check  remittances  will  be 
mado  simultaneously. 

Remittances  of  Federal  reserve  notes  will  not  be  charged 
in  transit  account,  but  will  be  carried  in  the  General  ledger 
item  “Notes  of  other  Federal  reserve  banks”  until  the  date  of 
receipt  by  the  bank  to  whom  sent.  Remittances  of  lawful 
money,  national  bank  notes,  etc.,  to  be  sent  only  upon  request, 
will  be  charged  to  the  reserve  bank  to  whom  sent  on  the  date 
of  shipment  and  will  be  carried  as  an  asset  of  such  bank 
among  its  other  cash  items. 

Time  items  will  be  forwarded  a sufficient  time  before  ma- 
turity and  will  be  charged  and  credited  on  date  due. 

Transfers  for  member  banks,  if  made  by  mail,  should  be 
charged  and  credited  on  day  of  receipt  of  notice.  If  made  by 
wire  the  entries  should  be  made  on  day  of  such  advice.  No  such 
transfers  should  be  made  by  wire  or  mail  after  3 P.  M.,  and  in 
the  event  of  differences  of  time  between  banks,  the  time  used  by 
the  bank  that  is  the  farthest  east  should  govern. 

The  original  figures  of  every  transaction  of  whatever  nature 
between  Federal  reserve  banks  should  be  considered  to  be  correct, 
and  the  original  entries  should  not  be  changed  by  either  the  bank 
charging  or  the  bank  crediting.  Allowances  for  errors,  returned 
items,  etc.,  and  all  changes  in  the  account  between  any  two  banks 
should  be  adjusted  by  mail.  The  accounts  between  any  two 
Federal  reserve  banks  will  thus  automatically  reconcile,  provided 
there  has  been  no  delay  in  the  mails.  To  provide  against  such  a 
contingency,  it  is  proposed  that  if  any  reserve  bank  fails  to  re- 
ceive the  regular  daily  letter  from  any  other  reserve  bank  by 
2 P.  M.,  a telegraphic  advice  be  sent  to  the  forwarding  bank, 
which  would  then  defer  the  usual  charge  until  the  following  day. 


56 


FEDERAL,  RESERVE  CLEARING  HOUSE. 


To  settle  the  balances  between  reserve  banks,  growing  out  of 
these  various  transactions,  a clearing  house  is  suggested,  as  pro- 
vided in  the  act,  in  the  clause  which  specifies  that:  ‘‘The  Federal  Re- 
serve Board  . . . may  at  its  discretion  exercise  the  functions  of  a 
clearing  house  for  such  Federal  reserve  banks,  or  may  designate 
a Federal  reserve  bank  to  exercise  such  functions.  . . .” 

If  one  of  the  Federal  reserve  banks  should  be  chosen  as  a 
clearing  house,  for  convenience  of  location  it  might  be  the 
Chicago  bank;  but  this  function  of  clearing  would  be  better 
assumed  by  the  Federal  Reserve  Board.  For  many  reasons  it 
would  be  well  to  establish  the  clearing  house  at  the  national  capital. 
Since  each  reserve  bank  will  carry  a single  account  with  every 
other  reserve  bank,  subject  to  simultaneous  debit  and  credit,  the 
bulk  of  the  interchange  of  business  will  clear  itself.  Balances 
will  arise  partly  on  account  of  the  seasonal  changes  which  will 
alter  the  debit  and  credit  relationship  between  the  districts,  and 
partly  on  account  of  the  fact  that  membership  in  the  system  will 
not  be  proportionately  equal  as  between  national  and  State  banks 
in  different  regions. 

The  plan  herewith  proposed  is  based  upon  the  requirement  that 
each  Federal  reserve  bank  deposit  with  the  Federal  Reserve  Board 
clearing-  house  all  of  its  gold  beyond  that  which  will  be  sufficient 
to  take  care  of  local  needs.  This  gold  deposit,  carried  on  the  books 
of  each  reserve  bank  in  a separate  item  as  a part  of  its  reserve 
funds,  can  be  used  in  either  of  two  ways  or  in  a combination  of 
them  to  effect  settlement  which  will  be  explained  later.  Settle- 
ment need  not  be  made  between  reserve  banks  oftener  than  weekly, 
since  to  require  daily  settlement  might  prevent  the  operation  of 
the  natural  clearing  effected  by  the  interchange  of  ordinary  busi- 
ness transactions.  Therefore,  at  the  close  of  business  on  each 
Thursday,  each  reserve  bank  should  wire  the  clearing  house  the 
amount  of  the  balance  and  should  state  whether  debit  or  credit 
relations  exist  between  it  and  other  reserve  banks.  Allowing  one 
day,  Friday,  for  adjustment  of  any  differences  in  the  advices 
received,  the  clearing  would  be  effected  on  Saturday.  How  this 
shall  be  done  depends  upon  a consideration  of  the  following  possi- 
bilities: 

The  gold  deposited  with  the  clearing-  house  may  be  credited  upon 
a simple  set  of  books  to  each  bank  so  depositing.  Clearing  would 
then  be  effected  by  a charge  and  credit  on  the  books,  and  advice 
would  be  made  to  the  reserve  banks.  This  is  the  simple  plan,  but 
it  has  one  apparent  disadvantage  in  that  the  banks  would  have 
no  tangible  evidence  of  the  ownership  of  the  gold  other  than  a 
book  credit.  Consideration  might,  therefore,  be  given  a plan  of 
issuing  certificates  in  large  denominations  against  the  proposed 
gold  deposits  as  clearing  house  currency  certificates  are  now  issued. 
Upon  the  direction  of  the  Federal  Clearing  House,  the  debtor 
reserve  banks  would  mail  these  certificates  to  the  creditor  banks 
to  pay  balances.  These  two  plans  might  be  combined  so  that,  al- 

57 


though  the  clearing  of  balances  would  be  effected  by  book  trans- 
fers of  gold  at  the  Federal  Clearing  house,  the  debtor  banks  could 
anticipate  this  settlement  by  mailing  certificates  to  creditor  banks 
prior  to  the  day  of  settlement.  Both  these  plans,  however,  seem 
less  effective  and  more  cumbersome  than  the  first  plan.  Very 
little  (if  any)  gold  would  ever  need  to  be  transferred  between  the 
reserve  banks,  and  such  operations  would  be  limited  to  transac- 
tions between  the  banks  and  the  clearing  house.  The  banks,  in 
turn,  would  be  able  to  loan  or  borrow,  buy  or  sell  gold  in  dealing 
with  each  other,  and  the  transactions  would  be  arranged  through 
book  transfers  at  Washington. 

It  is  recommended  that  the  official  who  may  act  for  the  Federal 
Reserve  Board  as  supervisor  of  the  clearing  functions  of  the 
system  act  also  as  the  manager  of  the  Federal  Reserve  Clearing 
House,  and  bear  the  same  relation  to  the  reserve  banks  that  the 
manager  of  any  clearing  house  does  to  the  members  of  a city 
clearing  house.  In  addition  to  the  supervision  and  control  over 
the  entfre  machinery  of  domestic  exchange,  he  should  provide 
for  its  development  along  lines  hereafter  suggested. 

CHARGES  FOR  COLLECTION. 

The  Federal  Reserve  Act  provides  in  Section  16  that: 

The  Federal  Reserve  Board  shall,  by  rule,  fix  the 
the  charges  to  be  collected  by  the  member  banks  from 
its  patrons  whose  checks  are  cleared  through  the  Fed- 
eral reserve  bank  and  the  charge  which  may  be  im- 
posed for  the  service  of  clearing  or  collection  rendered 
by  the  Federal  reserve  bank. 

The  Federal  Reserve  Board  shall  make  and  promul- 
gate from  time  to  time  regulations  governing  the  trans- 
fer of  funds  and  charges  therefor  among  Federal  re- 
serve banks  and  their  branches.  . . . 

It  must  be  borne  in  mind  that  the  banking  power  of  the  United 
States  will  divide  more  sharply  than  it  has  ever  done  before  into 
two  groups — members  and  non-members.  It  is  the  intent  of  the 
Act  itself  to  bring  non-members  into  the  system.  But  so  long  as 
there  is  any  considerable  body  of  non-member  banks,  the  two 
groups  will  of  necessity  be  in  competition  with  one  another,  pro- 
ducing two  parallel  clearing  systems.  The  organization  of  the 
domestic  exchange  machinery  of  the  new  system  thus  takes  on 
a double  aspect.  On  the  one  hand,  Federal  reserve  banks  and 
their  members  must  be  prepared  to  meet  a competition  on  the 
part  of  non-members.  But  on  the  other  hand  the  domestic  ex- 
change business  of  the  Federal  reserve  system  must  be  so  arranged 
as  to  offer  constant  inducements  to  non-members  to  enter  the 
System.  At  the  same  time,  members  must  find  it  more  prof- 
itable to  use  the  Federal  reserve  system  than  to  make  col- 
lections as  at  present.  The  situation  is  more  complex  when  it  is 
taken  into  consideration  that  member  banks  are  in  a position  to 


58 


deal  on  favorable  terms  either  with  the  Federal  reserve  banks 
and  their  members  or  with  non-members. 

All  charges  contemplated  in  the  act  should  be  based  on  actual 
costs,  and  it  should  not  be  the  policy  of  the  Federal  Reserve  Board, 
nor  of  the  reserve  banks,  to  assess  these  charges  against  member 
banks  upon  a basis  that  would  yield  a profit.  All  costs  should  be 
placed  against  members  for  whom  service  is  rendered  as  here- 
after provided.  The  costs  would  include  overhead  charges,  clerical 
hire,  including  that  of  department  management,  stationery,  postage 
and  equipment  depreciation.  In  addition,  all  similar  expense  inci- 
dental to  the  maintenance  and  operation  of  the  Federal  Clearing 
House  will  be  assessed  against  the  reserve  banks,  which  charge 
will,  in  turn,  be  added  by  each  reserve  bank  as  a part  of  its 
clearing-  expense. 

It  should  be  the  duty  of  the  compilation  department  of  each  re- 
serve bank  to  keep  an  accurate  monthly  record  of  the  costs  herein 
mentioned  incidental  to  the  clearing  of  all  checks.  A record  of  the 
amount  and  number  of  checks  and  drafts  charged  against  the  ac- 
count of  each  member  should  be  kept  by  each  reserve  bank, 
and  an  additional  record  of  the  amount  of  the  items  pay- 
able in  other  districts  deposited  for  credit  and  clearing  by  mem- 
ber banks.  The  total  monthly  cost  should  then  be  divided 
between  these  two  amounts  in  proper  proportion,  the  number 
of  items  making  up  the  amount  payable  outside  the  district 
being  estimated  upon  the  basis  of  the  figures  of  the  number  of 
checks  divided  into  the  total  amount  charged  against  members’ 
balances.  The  cost  of  handling  checks  charged  against  members’ 
balances  should  then  be  charged  monthly  to  the  accounts  of  such 
members,  and  should  be  based  one-half  per  hundred  of  items 
and  one-half  per  thousand  dollars.  The  cost  of  handling 
checks  on  other  districts  should  be  similarly  pro-rated  and  charged 
against  members  depositing  such  checks. 

Each  reserve  bank  should  be  required  to  send  a monthly  state- 
ment to  the  Federal  Reserve  Clearing  House,  showing  total 
amount  that  has  been  charged  against  it  by  all  other  reserve 
banks  during  the  previous  month.  The  clearing  house  would  then 
assess  the  costs  of  operation  upon  reserve  banks  in  proportion  to 
such  amounts.  Each  reserve  bank  should  calculate  the  proportion 
of  this  clearing  house  cost  chargeable  to  check  and  transfer-for- 
members  debits,  and  this  cost  should  then  be  apportioned  and 
charged  to  members  per  thousand  dollars  of  checks  charged  to 
their  accounts  or  transfers  made  for  them.  Similarly  the  propor- 
tion of  the  cost  of  shipping  gold  to  the  clearing  house  chargeable 
to  check  and  member  transfer  debits  should  be  added  by  each 
reserve  bank  to  the  clearing  house  cost  which  is  to  be  charged  to 
members.  Except  for  the  charge  for  telegraphing  when  such 
transfers  are  requested,  there  should  be  no  further  charge  against 
members  for  the  transfer  of  funds.  Accounts  of  the  United  States 
Government  or  any  of  its  disbursing  agents  should  be  subject  to 
the  same  basis  and  method  of  clearing  charges  as  applied  to 
member  banks. 


59 


In  addition  to  the  charges  above  provided,  a scale  of  fines 
should  be  arranged  applicable  to  members  making  errors  in  their 
deposits.  The  purpose  of  such  fines  is  to  place  the  cost  of  locating 
errors  against  the  member  making  the  error,  and  the  income,  if 
any,  derived  from  this  source  should  be  deducted  from  the  total 


operating  cost.  The  scale  should  cover  the  following: 

Error  in  listing  or  addition $1.00 

Error  in  recapitulation  sheet 1.00 

Items  missorted,  including  items  not  receivable, 

each .50 

Checks  listed  but  not  enclosed,  or  enclosed  but 

not  listed,  each 2.00 

Items  not  endorsed,  each .50 

CHARGES  BY  MEMBER  BANKS. 


The  policy  of  limiting  charges  by  member  banks  against  their 
patrons  to  actual  expenses  incurred  is  clearly  indicated  in  the  bill. 
Therefore  the  rate  which  the  Federal  Reserve  Board  is  to  fix  for 
the  member  banks  to  charge  for  their  patron’s  checks  which  are 
cleared  through  the  reserve  banks,  should  be  based  cn  the  costs 
as  outlined  and  hereinbefore  provided.  Checks  payable  outside  the 
district  may  be  made  subject  to  a charge  by  the  member  banks 
against  the  endorsers. 

Checks  drawn  by  depositors  and  charged  against  the  member 
banks’  accounts  by  the  reserve  banks  may  be  made  subject  to  a 
charge  against  the  makers  of  the  checks.  In  each  case  the  Federal 
Reserve  Board  should  base  the  rate  on  charges  made  by  the  reserve 
banks,  both  for  district  and  other  items,  and  an  additional  amount 
to  cover  a similar  cost  entailed  by  the  member  bank  as  to  over- 
head charges,  stationery,  etc.  This  rate,  which  may  be  made 
dependent  on  the  amount  of  the  checks  only,  shall  be  considered 
to  be  the  maximum  rate  which  the  member  bank  may  be  permitted 
to  charge  under  the  act,  but  it  is  recommended  that  the  words 
in  Section  16,  page  19,  line  46,  “to  be  collected,”  be,  by  rule,  con- 
strued to  mean  “may  be  collected.”  Otherwise  depositors  in  mem- 
ber banks  would  withdraw  their  deposits  and  place  them  with  non- 
members not  required  to  make  such  charges. 

Charges  should  be  made  by  the  reserve  banks  against  member 
banks  as  near  as  possible  to  the  first  of  each  month  covering  the 
costs  of  the  preceding  month.  The  charges  that  are  to  be  made 
by  member  banks  against  their  patrons  should  be  based,  as  pro- 
vided, on  the  original  costs;  but  they  should  be  at  rates  fixed 
annually  to  cover  such  charges  with  sufficient  margin  only  to 
allow  for  slight  monthly  variations.  Every  member  bank  should 
be  permitted  to  make  its  own  charges  against  depositors  who  draw 
against  uncollected  funds,  or  against  non-depositors  for  cashing 
or  collecting  checks  and  drafts.  Charges  provided  in  the  act 
should  not  be  construed  to  cover  notes,  sight  drafts,  coupons,  or 
other  paper  commonly  known  as  “collections,"  but  should  cover 
checks  and  bank  drafts  only. 


60 


OTHER  RULES  AND  REGULATIONS. 

One  provision  in  the  Federal  Reserve  Act  specifies  that: 

The  Federal  reserve  bank  . . . shall  have  power — 

Third:  To  make  contracts. 

Sixth.  To  prescribe  by  its  board  of  directors,  by- 
laws not  inconsistent  with  law,  regulating  the  manner 
in  which  its  general  business  may  be  conducted,  and 
the  privileges  granted  to  it  by  law  may  be  exercised 
and  enjoyed. 

Seventh.  To  exercise  by  its  board  of  directors,  or 
duly  authorized  officers  or  agents,  all  powers  specifically 
granted  by  the  provisions  of  this  act  and  such  inci- 
dental powers  as  shall  be  necessary  to  carry  on  the 
business  of  banking  within  the  limitations  prescribed 
by  this  act. 

In  accordance  with  these  powers,  it  is  recommended  that  as  soon 
as  the  recommendations  herein  contained,  or  similar  recommenda- 
tions, have  been  officially  adopted  by  the  Federal  Reserve  Board,  each 
Federal  reserve  bank  shall  send  to  each  member  bank  a printed 
agreement  which  each  member  shall  sign  by  its  president  and 
cashier.  This  agreement  (subject  to  change  in  the  details  of  the 
clearing  plan  finally  adopted)  should  be  somewhat  as  follows: 

In  order  that  the  provisions  of  the  Federal  Reserve 
Act  affecting  the  deposit  of  funds  by  member  banks, 
the  collection  and  clearing  of  checks  and  drafts,  and  the 
fixing  of  charges  therefor  may  be  efficiently  and  eco- 


nomically administered,  the  National  Bank, 

member  of  the  reserve  bank  of  herewith 


agrees  to  be  bound  by  the  following  rules: 

1.  All  items  shall  be  deposited  on  such  forms  and 
in  such  manner  as  shall  be  prescribed  by  the  Federal 
reserve  bank,  and  failure  to  do  so,  or  any  errors  made 
in  such  deposits  shall  subject  the  member  bank  to  a 
reasonable  fine. 

2.  Members  agree  not  to  deposit  with  the  Federal 
reserve  bank  checks  on  other  member  banks  within 
twenty-five  miles  of  such  member  bank,  except  where 
specifically  permitted  by  the  reserve  bank,  or  except 
that  this  rule  shall  not  be  construed  to  apply  to  mem- 
bers which  are  within  twenty-five  miles  of  the  reserve 
bank.  Members  situated  in  the  same  city  with  the 
reserve  bank  shall  not  deposit  checks  and  drafts  on 
other  member  banks  in  that  city,  unless  such  members 
are  not  members  of  the  clearing  house.  (This  rule  is 
inserted  as  a result  of  the  belief  that  it  will  be  found 
expedient  to  give  to  the  reserve  bank  the  power  to 
refuse  to  accept  such  items  as  would  better  be  col- 
lected through  local  clearing  houses  or  branch  banks.) 

3.  It  is  agreed  that  the  Federal  reserve  bank  may 


61 


send  all  items  direct  to  the  member  bank  on  which  they 
are  drawn. 

, 4.  Items  received  after  the  time  fixed  for  the  receipt 

of  such  items  shall  be  held  over  until  the  following  day, 
and  notice  sent  to  the  member  bank. 

5.  The  accounts  of  members  will  be  charged,  upon 
notice,  with  items  lost  in  the  mails  or  otherwise,  and 
upon  request  members  shall  secure  duplicates. 

6.  Items  accompanied  by  special  instructions,  such 
as  "no  protest,”  “wire  non-payment,”  etc.,  shall  have 
firmly  affixed  a slip  bearing  such  instructions,  and  in 
addition  each  item  shall  be  plainly  stamped  with  a 
mark  indicating  such  instructions.  Other  than  this, 
no  confirmation  of  instructions  shall  be  required  on 
the  letter. 

7.  The  member  bank  undersigned  hereby  agrees 
that  the  clearing  endorsement  stamp  used  by  it  on  all 
checks  deposited  with  the  reserve  bank  guarantees  all 
prior  endorsements. 

8.  Items  unpaid  are  to  be  returned  direct  to  the 
member  bank  which  originally  deposited  such  items 
with  any  Federal  reserve  bank,  and  proper  notice  is 
to  be  sent  to  the  reserve  bank  from  which  such  items 
were  received. 

9.  The  member  bank  undersigned  agrees  that  all 
checks  and  drafts  payable  at  such  bank  shall  be 
charged  against  the  balance  standing  to  its  credit 
with  the  reserve  bank  on  the  day  of  receipt  of  such 
items  by  the  member  bank. 

10.  The  reserve  bank  shall  charge  interest  at  . . . 

% above  the  current  discount  rates  for  all  drafts  or  deb- 
its against  member  banks’  balances  when  such  balances 
are  below  the  net  amount  of  collected  funds  standing 
to  the  credit  of  such  members. 

11.  A daily  statement  of  charges  and  credits  will 
be  sufficient  advice  and  acknowledgment  of  all  transac- 
tions. 

GENERAL,  SUGGESTIONS. 

The  plans  and  forms  prepared  for  the  clearing  functions  of 
the  Federal  reserve  system  have  been  so  shaped  that  no  change  in 
principle  will  be  necessary  after  branch  reserve  banks  are  estab- 
lished. It  has  been  thought  wise  not  to  arrange  clearing  plans  for 
branch  banks  at  this  time,  since  such  banks  will  not  be  in  operation 
for  some  time  following  the  organization  of  the  reserve  banks,  and 
a short  experience  with  the  system  will  demonstrate  to  what  extent 
branch  banks  will  undertake  the  clearing  and  collection  of  checks. 
It  is  probable  that  they  will  receive  checks  on  deposit  from  mem- 
bers in  the  same  city  only,  and  will  receive  checks  on  members 
from  other  reserve  banks  only  when  such  members  are  farther 
distant  than  one  night’s  mail  from  the  Federal  reserve  bank  of 


G2 


the  district.  Again,  there  may  be  branches  established  which  may 
clear  a limited  territory  not  easily  accessible  to  or  from  the  reserve 
bank.  Such  clearing,  however,  should  be  strictly  local,  and  these 
branch  banks  should  not  receive  items  on  deposit  payable  in  other 
districts,  nor  should  other  Federal  reserve  banks  send  them  items 
except  (perhaps)  those  payable  in  the  city  where  the  branch  bank 
is  located. 

Whatever  may  be  the  business  transactions  to  be  developed 
between  a Federal  reserve  bank  and  branch  banks  of  another  dis- 
trict, the  clearing  relations  between  the  reserve  banks  will  not  be 
altered,  since  all  such  transactions  will  be  credited  or  debited  on 
the  books  of  the  main  banks,  proper  advices  forwarded,  and  adjust- 
ment made  between  the  reserve  bank  and  its  branch  affected. 

If  that  plan  be  deemed  expedient  the  work  of  clearing  may  be 
developed  gradually.  At  first  the  Federal  reserve  banks  might 
limit  the  items  received  for  collection  to  those  payable  in  the 
larger  cities  in  the  district,  extending  the  service  until  the  entire 
district  is  covered.  Drafts  on  all  Federal  reserve  banks  should  be 
accepted  from  the  first,  but  no  items  payable  in  other  districts 
should  be  accepted  until  the  machinery  is  working  smoothly,  and 
this  service  should  then  be  extended  in  the  same  manner  that  is 
suggested  for  each  individual  district.  Member  banks  on  which 
checks  might  be  accepted  at  the  beginning  should  be  permitted  to 
deposit  items  payable  in  other  districts.  This  would  enable  them 
to  meet  the  checks  drawn  against  them,  and  would  make  it 
possible  to  develop  the  exchange  relations  between  the  Federal 
reserve  banks  at  the  outset. 

On  account  of  geographical  and  railroad  limitations  situations 
will  arise  in  every  district  where  it  will  not  be  feasible  for 
member  banks  to  send  checks  on  other  member  banks  to  the  Fed- 
eral reserve  banks.  Each  such  case  will  need  to  be  adjusted 
according  to  conditions,  either  through  branch  banks  or  by  re- 
ciprocal relations  established  between  the  member  banks,  settle- 
ment being  arranged  by  a system  of  transfers.  There  are  sections, 
as  for  example  the  state  of  Mississippi,  where  the  non-member 
banks  will  so  far  outnumber  the  member  banks  that  a hardship 
will  be  imposed  upon  members  unless  they  find  relief  through 
the  assistance  of  the  Federal  reserve  bank  of  the  district,  which 
might  establish  local  offices  at  many  centres  and  accept  and  collect 
checks  on  non-member  banks. 

A list  of  member  State  banks  and  trust  companies  should  be 
sent  to  each  member  bank,  and  a monthly  supplement  showing 
additions  furnished.  A list  of  non-member  national  banks  may 
also  for  a time  be  required.  A large  map  should  be  furnished  all 
members  at  cost,  showing  the  district  limits,  mail  time  between 
Federal  reserve  banks,  variation  in  time  used,  expressage  and 
telegraphic  rates,  and  such  other  information  as  may  be  found 
expedient. 

It  is  recommended  that  a standard  form  of  draft  be  required 
for  use  by  each  member  bank  in  drawing  on  its  reserve  bank,  and 


63 


if  each  reserve  bank  should  adopt  a different  color  of  paper  upon 
which  the  drafts  are  to  be  printed,  it  would  promote  convenience 
in  assorting  these  items  and  would  tend  to  prevent  misrouting. 
It  would  also  serve  as  an  example  to  the  banks  and  make  it  easier 
later  to  provide  a color  system  applying  to  all  checks. 

Arrangements  could  be  made  with  the  Bureau  of  Engraving 
and  Printing  to  prepare  the  drafts  on  the  Federal  reserve  banks 
for  members  at  cost.  Uniformity  would  thus  be  assured. 

A large  item  of  expense  and  a great  source  of  annoyance  and 
delay  to  all  large  banks  is  the  daily  weighing  and  stamping  of 
letters  containing  checks  and  drafts  sent  out  each  night.  This 
work  will  be  greatly  increased  in  the  reserve  hanks,  and  will 
constitute  quite  an  item  of  expense  as  to  labor.  The  Post  Office 
Department  should  be  consulted  and  arrangements  made  whereby 
the  Federal  reserve  banks  would  be  authorized  to  send  out  letters 
containing  checks  and  other  remittances  at  first-class  rates,  the 
payment  to  be  made  by  bulk  weight.  This  would  also  be  a con- 
venience to  the  Post  Office  Department,  since  it  would  not  be 
necessary  to  test  the  letters  as  to  the  correct  amount  of  postage 
used,  and  some  economy  would  be  effected  in  the  preparation  and 
sale  of  postage  stamps. 

CHECKS  ON  NON-MEMBER  BANKS. 

There  is  nothing  in  the  act  that  prohibits  the  acceptance  by 
Federal  reserve  banks  from  members  of  deposits  of  checks  payable 
by  non-member  institutions.  By  accepting  such  items  to  a lim- 
ited extent  clearings  could  be  equalized  at  times  between  the 
reserve  banks,  thus  avoiding  the  transfer  of  gold  to  the  clearing 
house.  Also,  exorbitant  exchange  rates  on  the  part  of  non- 
members could  be  checked  wherever  there  is  a member  bank  in 
the  same  town,  by  having  such  member  collect  checks  on  the 
non-member  bank  or  banks  for  other  members  through  the  Federal 
reserve  banks. 

AN  ALTERNATIVE  PLAN. 

Many  suggestions  have  been  presented  with  reference  to  the 
matter  of  handling  the  clearings  of  the  Federal  Reserve  Banks. 
It  has  been  found  that  probably  the  greatest  difference  of  opinion 
concerns  the  manner  of  dealing  with  the  Transit  problem.  In  view 
of  the  fact  that  the  precise  scope  of  the  Banks’  operations  has  not 
been  determined,  it  is  therefore  considered  worth  while  to  offer  for 
consideration  an  alternative  plan  for  the  clearance  of  transit  items, 
differing  from  the  one  set  forth  above.  The  main  feature  to  be 
considered  in  this  connection  will  be  found  to  relate  to  the  time 
at  which  the  items  are  to  be  credited  to  Reserves  by  the  several 
Banks. 

In  support  of  this  alternative  plan  it  is  argued  that  if  the  pur- 
pose is  to  shape  the  operations  of  the  Federal  Reserve  Banks  so 
that  the  growth  of  the  Member  Banks  will  reflect  itself  in  the  Fed- 
eral Reserve  Banks,  it  would  appear  advisable  to  afford  special  ad- 
vantages to  the  Member  Banks  which  would  encourage  their  main- 


64 


taming'  larger  balances  than  required  by  law  with  the  reserve 
banks. 

Any  plan  which  would  assist  in  placing  Member  Banks  in  a 
more  favorable  position  than  non-Member  Banks,  in  the  clearance 
of  transit  items  at  par,  and  at  the  same  time  extend  the  privilege 
to  the  Member  Banks  of  an  immediate  settlement  for  such  items, 
should  receive  careful  consideration,  inasmuch  as  it  would  without 
question  stimulate  more  widespread  interest  in  the  Federal  Reserve 
System  and  make  its  membership  more  attractive. 

The  essential  point  of  the  plan  is: 

Clearance  at  par,  with  immediate  credit  in  the  Reserve  Accounts 
of  Member  Banks  for  such  items  as  they  may  forward  for  collec- 
tion to  the  Federal  Reserve  Bank  of  their  district  and  which  are 
drawn  upon 

(a)  Member  Banks  of  their  own  district; 

(b)  Federal  Reserve  Banks  of  other  districts; 

(c)  Member  Banks  of  other  districts. 

In  order  that  this  may  be  effected,  an  immediate  settlement  for 
such  items  would  be  obtained  by  the  Federal  Reserve  Banks  in  the 
following  manner; 

MEMBER  BANKS  OF  THEIR  OWN  DISTRICT. 

Items  drawn  upon  Member  Banks  located  within  the  district  in 
which  the  Federal  Reserve  Bank  is  situated,  will  be  charged 
against  their  accounts  upon  the  day  of  forwarding. 

FEDERAL  RESERVE  BANKS  AND  MEMBER  BANKS  OF 
OTHER  DISTRICTS. 

1.  A certain  portion  of  the  gold  reserve  of  the  Federal  Re- 
serve Banks  would  be  concentrated  at  Washington,  preferably 
with  the  Secretary  of  the  Treasury,  as  Chairman  of  the  Board,  who 
would  maintain  a ledger  record  of  the  balance  of  gold  reserve  be- 
longing to  each  Bank. 

2.  The  Federal  Reserve  Agents  would  authenticate,  each  day, 
the  transit  operations  of  the  Federal  Reserve  Banks,  and  forward 
a descriptive  statement  to  the  Secretary  of  the  Treasury,  which 
would  enable  him  to  record  the  debits  and  credits  in  the  gold  re- 
serve of  the  different  Federal  Reserve  Banks.  This  would  place  the 
Secretary  of  the  Treasury  in  a position  to  assemble  the  entries  of 
all  the  Federal  Reserve  Agents,  with  the  result  that  the  Federal 
Reserve  Board  would  maintain  the  gold  reserves  in  twelve  ac- 
counts, so  that  the  transfers  of  gold  would  be  by  book  entries  and 
shipments  would  be  reduced  to  a minimum. 

3.  Each  Federal  Reserve  Bank  would  carry  an  account  upon 
its  books  known  as  “Transit  Account,’’  the  account  being  upon  a 
daily  liquidating  basis,  as  the  balance  resulting  from  the  transac- 
tions would  mean  either  a credit  or  a debit  to  the  Reserve  Account 
of  “Gold  Reserve  with  Secretary  of  the  Treasury.”  The  credits  to 
Transit  Account  would  consist  of  remittance  letters  received  from 
other  Federal  Reserve  Banks,  while  the  debits  would  be  the  total  of 
the  cash  letters  in  process  of  being  forwarded  for  collection  to 


65 


other  Federal  Reserve  Banks.  The  result  of  this  would  be,  say  in 
the  event  that  the  Federal  Reserve  Bank  of  Chicago  received  re- 
mittance letters  for  collection  greater  in  amount  than  the  total  of 
the  cash  letters  forwarded  by  it,  that  the  credit  balance  in  the  ac- 
count would  be  liquidated  by  passing  its  equivalent  to  the  credit  of 
“Gold  Reserve  with  Secretary  of  the  Treasury,”  thereby  reducing 
the  gold  reserve  to  cover  the  transit  transactions  of  the  day. 

From  this  brief  outline,  it  will  be  noted  that  an  immediate  set- 
tlement has  been  obtained  for  the  transit  items  and  that  “Out- 
standing Time”  has  been  eliminated  by  the  expedient  of  book  en- 
tries in  the  gold  reserve,  such  entries  having  been  authenticated  by 
the  Federal  Reserve  Agent. 

Further  details  of  the  plan  would  be: 

(a)  The  ledger  record  of  the  Secretary  af  the  Treasury  would 
be  so  designed  that  a carbon  copy  would  constitute  a daily  state- 
ment to  the  Federal  Reserve  Banks  of  the  debits  and  credits  enter- 
ing their  balances  of  gold  reserve.  This  would  also  enable  the 
Federal  Reserve  Banks  to  check  such  entries,  and  likewise  place 
them  in  close  touch  with  the  condition  of  the  account. 

(b)  The  credit  and  debit  entries  which  would  appear  upon  the 
daily  statement  of  the  Federal  Reserve  Agent  to  the  Secretary  of 
the  Treasury,  would  be  obtained  by  means  of  a form  prepared  in 
quadruplicate  for  use  of  the  Bookkeeping  Department  of  the  Fed- 
eral Reserve  Banks. 

(c)  Federal  Reserve  Notes  would  be  listed  upon  a separate 
letter  and  included  in  the  total  of  the  outgoing  remittances. 

(d)  Unpaid  cash  items  would  be  charged  to  the  Transit  De- 
partment, where  they  would  be  listed  upon  a separate  letter  and 
included  in  the  total  of  the  outgoing  remittances  for  the  day. 

(e)  Cash  letters  from  Federal  Reserve  Banks  or  Member 
Banks  would  be  credited  only  when  received  in  time  for  use  the 
same  day. 

(f)  Checks  received  by  Member  Banks,  which  are  payable 
within  a certain  radius  to  be  determined  by  the  Federal  Reserve 
Board,  would  not  be  forwarded  for  credit  to  the  Federal  Reserve 
Bank  of  their  district. 

(g)  The  usual  Reciprocal  accounts,  subject  to  check,  would  be 
maintained  by  the  different  Federal  Reserve  Banks,  for  the  pur- 
pose of  collection  of  drafts,  notes,  coupons,  and  etc. 

(h)  Telegraphic  transfers  up  to  a certain  amount  may  be 
made  through  the  Reciprocal  accounts,  while  for  larger  amounts 
it  would  be  advisable  to  use  the  existing  sub-treasuries  or  the  me- 
dium of  book  transfers  in  the  gold  reserve  at  Washington. 

(i)  Errors  in  listing,  etc.,  would  be  adjusted  by  means  of  claim 
tickets  to  be  drawn  and  approved  by  the  Auditor  and  signed  by  an 
officer  of  the  Bank. 

(j)  To  defray  the  expense  of  labor,  stationery,  postage,  depre- 
ciation of  equipment,  etc.,  it  would  appear  advisable  to  assess  the 
Member  Banks  upon  the  basis  of  the  volume  of  business  handled 
as  compared  with  the  expense  involved. 


66 


(k)  In  view  of  the  special  advantages  afforded  Member  Banks 
under  the  proposed  plan,  and  to  confine  such  advantages  to  Banks 
in  the  Federal  Reserve  System,  Member  Banks  should  be  pro- 
hibited from  depositing'  transit  items  which  in  turn  have  been  de- 
posited with  them  by  non-Member  Banks. 

The  endorsement  stamp  of  the  Member  Banks  would  be: 

Pay  to  the  Order  of 

Federal  Reserve  Bank,  Chicago,  Illinois, 

May  28,  1914, 

Endorsements  Guaranteed 
(Name  of  Member  Bank) 

while  the  endorsement  stamps  of  the  Federal  Reserve  Banks  would 

hp  ■ 

Pay  to  the  Order  of 
Any  Member  Bank  District  No.  2 
May  28,  1914, 

Endorsements  Guaranteed 
Federal  Reserve  Bank 
New  York,  N.  Y. 

Pay  to  the  Order  of 
Any  Federal  Reserve  Bank 
May  28,  1914, 

Endorsements  Guaranteed 
Federal  Reserve  Bank 
New  York,  N.  Y. 

The  accounting  forms  necessary  to  facilitate  the  prompt  and  ef- 
ficient handling  of  this  alternative  plan  will  be  found  in  Port- 
folio of  forms  No  II,  accompanying  Appendix  II,  with  which  this 
plan  is  correlated. 

QUESTION  OF  TIME  IN  COLLECTION. 

The  usual  method  employed  at  the  present  time  in  the  collec- 
tion of  transit  items,  contains  as  a most  important  factor  the  mat- 
ter of  “Outstanding  Time,”  inasmuch  as  the  Banks  are  obliged  to 
await  the  receipt  of  returns  covering  the  settlement  of  such  items 
as  may  have  been  forwarded  to  correspondents  for  collection.  Theo- 
retically speaking,  this  burden  should  be  borne  by  the  depositors 
of  the  Banks,  as  it  would  not  be  sound  banking  to  permit  the  with- 
drawal of  funds  in  the  course  of  collection,  but  from  a pi’actical 
standpoint  it  would  be  difficult  to  educate  depositors  not  to  check 
against  outstanding  items  and  must  so  regulate  their  books  that 
they  may  know  at  all  times  what  their  checking  balance  really  is. 

Under  the  first  plan  discussed  above,  namely,  that  of  with- 
holding outstanding  transit  items  from  reserve  balances  of  Mem- 
ber Banks  until  such  time  as  the  checks  are  theoretically  collected, 
the  problem  of  outstanding  time  is  admitted,  but  only  partially 
solved  by  the  decision  that  in  order  to  lessen  the  burden  upon  the 
Member  Banks  the  outstanding  time  be  cut  in  two;  that  is,  the 
checks  will  be  permitted  to  enter  the  reserve  balances  of  the  Mem- 
ber Banks  upon  the  theoretical  day  of  collection. 


67 


The  first  plan  proposes  as  an  offset  to  the  deduction  of 
transit  items  from  the  reserve  balances,  to  defer  charging  items 
drawn  upon  Member  Banks  until  such  time  as  they  have  been  re- 
ceived, thereby  establishing  a basis  of  equality. 

For  the  purpose  of  carrying  out  the  project,  each  Member 
Bank,  in  addition  to  the  Federal  Reserve  Banks,  must  as  already 
explained,  be  equipped  with  time  schedules  indicative  of  the  days 
necessary  for  the  collection  of  checks,  and  upon  the  days  of  ma- 
turity, when  the  items  are  supposed  to  be  paid,  entries  would  be 
made  upon  both  the  books  of  the  Member  Banks  and  the  Federal 
Reserve  Banks,  a plan  which  would  enable  the  collected  items  to 
serve  as  reserve  for  the  Member  Banks;  while  in  like  manner  the 
checks  which  are  forwarded  by  the  Federal  Reserve  Banks  to  the 
Member  Banks,  in  accordance  with  the  pre-arranged  schedule, 
would  be  charged  against  the  balances  of  the  Member  Banks  upon 
the  day  they  are  supposed  to  have  been  received. 

The  Committee  has  been  at  pains  to  secure  criticisms  upon  the 
transit  problem  and  finds  that  the  idea  of  withholding  credit  until 
items  are  collected  is  thought  by  many  to  have  the  following  dis- 
advantages ; 

1.  It  places  a discount  upon  such  inland  exchange  as  may  re- 
quire the  Federal  Reserve  Banks  one  day  or  more  to  collect. 

2.  It  similarly  places  a comparative  premium  upon  such 
exchange  as  may  be  drawn  upon  Member  Banks  located  within 
the  cities  in  which  the  Federal  Reserve  Banks  are  situated. 

3.  It  might  tend  to  discourage  Member  Banks  from  using  the 
facilities  of  the  Federal  Reserve  Banks,  with  the  result  that  they 
might  either  withdraw  from  the  System  or  maintain  the  exact 
amount  of  reserve  required  by  the  Act. 

4.  It  might  render  the  Transit  System  of  the  Federal  Reserve 
Banks  more  complex  and  to  result  in  confusion,  if  not  skilfully 
conducted. 

5.  It  might  entail  additional  labor. 

6.  It  might  mean  the  maintenance  of  subsidiary  records,  both 
in  the  Federal  Reserve  Banks  and  in  the  Member  Banks. 

7.  It  might  be  difficult  of  proof. 

8.  The  most  carefully  planned  Time  Schedule  would  be  only 
approximate. 

9.  The  return  of  unpaid  items  from  one  Member  Bank  di- 
rect to  another,  when  the  items  were  originally  forwarded  by  the 
Federal  Reserve  Bank  for  credit,  might  result  in  error. 

VIEWS  OF  A TRANSIT  EXPERT. 

By  way  of  further  elucidating  the  main  points  at  issue  in  this 
matter  the  committee,  without  expressing  final  opinion,  thinks  best 
to  include  in  this  report  the  following  letter  from  an  eminent  clear- 
ing and  transit  expert  to  whom  this  subject  was  referred  with  a re- 
quest for  an  opinion. 

“In  compliance  with  your  request  I have  gone  over  the  plan  sub- 
mitted to  me  regarding  the  method  of  handling  items  through  the 
Federal  reserve  banks,  and  beg  to  submit  the  following  suggestions: 


68 


(1)  REGARDING  THE  RELATIONS  BETWEEN  THE 
FEDERAL  RESERVE  BANKS  AND  THEIR  MEMBERS 

IN  THE  SAME  CITY. 

“As  Federal  reserve  banks  will  not  handle  items  on  non-member 
banks,  or  receive  any  items  from  non-member  banks,  there  does  not 
appear  to  be  any  necessity  for  a Federal  reserve  bank  joining  the 
clearing  house  in  the  city  in  which  it  is  located.  Items  which  the 
Federal  reserve  bank  will  have  on  member  banks  in  its  own  city 
can  be  charged  to  their  accounts  with  the  Federal  reserve  bank  and 
a time  allowance  made  the  member  bank  for  the  redemption  of  un- 
paid items. 

“Items  on  member  banks  which  fall  into  the  hands  of  non-member 
banks  can  be  collected  through  the  clearing  house  as  at  present. 
The  only  service  which  would  be  rendered  by  the  Federal  reserve 
bank  through  the  clearing  house  would  be  the  facility  of  member 
banks  settling  their  balances  with  each  other  by  checks  on  the  Fed- 
eral reserve  bank. 

“Checks  on  the  Federal  reserve  bank  which  may  fall  into  the 
hands  of  non-member  banks  can  be  deposited  in  the  member  banks 
and  it  is  probable  that  non -member  banks  in  the  Federal  reserve 
cities  will  carry  accounts  with  member  banks.  They  will  either 
have  to  do  this  to  get  the  items  cleared  or  will  have  to  become 
members  of  the  Federal  reserve  system  themselves. 

“If  the  Federal  reserve  banks  should  allow  clearings  between  non- 
member banks  and  themselves,  this  would  remove  a strong  reason 
for  non-member  banks  becoming  members. 

“Checks  on  member  banks  which  are  not  members  of  the  clear- 
ing house  in  the  Federal  reserve  cities,  should  be  received  on  de- 
posit by  Federal  reserve  banks.  This  would  provide  a place  of 
redemption  for  items  on  outlying  member  banks,  many  of  which 
are  located  several  miles  from  the  downtown  district  and  whose 
items  have  to  be  collected  either  by  mail  or  messenger,  and  would 
also  provide  a place  of  payment  for  the  downtown  member  banks 
which  are  not  members  of  the  clearing  house.  This  would  be  a 
great  accommodation  to  the  member  banks,  as  considerable  dif- 
ficulty is  experienced  in  handling  the  items  of  outlying  banks. 

“When  Clearing  House  balances  are  settled  through  the  Fed- 
eral reserve  bank,  payment  should  be  made  by  checks  on  the 
Federal  reserve  bank  rather  than  by  memorandum  showing 
debtor  and  creditor  balances,  as  then  no  dispute  would  arise 
in  making  settlement. 

(2)  RELATIONS  BETWEEN  THE  FEDERAL  RESERVE 
BANKS  AND  THEIR  MEMBERS  OUTSIDE  OF  THE  FEDERAL 

RESERVE  CITIES. 

“In  assorting  the  items  for  deposit  in  the  Federal  reserve  banks 
there  does  not  seem  to  be  any  necessity  to  sort  the  items  according 
to  the  states,  as  state  lines  have  not  been  used  in  outlining  the 
districts. 

“With  reference  to  ‘No  protest’  and  ‘Wire  non-payment’  in- 
structions, besides  having  the  items  so  marked,  these  instructions 
should  also  be  written  on  the  letter  accompanying  the  items,  as 


69 


otherwise  the  receiving-  bank  would  claim  the  instructions  were 
not  given  and  the  sending-  bank  would  not  have  the  item  to  prove 
they  had  been  given. 

“With  regard  to  the  clearing-  system  to  be  used  in  each  Federal 
reserve  bank,  if  we  are  going  to  have  a clearing  system,  why  not 
make  it  complete  instead  of  going  only  half  way?  All  items  re- 
ceived by  a Federal  reserve  bank  drawn  on  members  in  its  own 
district  should  be  credited  when  deposited  to  the  reserve  account 
of  the  depositing  member  bank  and  charged  at  the  same  time  to 
the  reserve  account  of  the  member  banks  upon  which  the  checks 
are  drawn,  thus  doing  away  with  a lot  of  unnecessary  work  for 
the  member  banks,  as  well  as  the  Federal  reserve  banks,  in  figur- 
ing the  time  taken  for  the  items  to  reach  their  destination. 

“The  system  for  clearing  these  items  should  be  as  simple  as  pos- 
sible, with  a minimum  amount  of  clerical  work,  otherwise  the 
member  banks  will  clear  their  items  through  outside  banks  and 
will  not  put  them  in  the  Federal  reserve  bank.  The  items  going 
through  the  Federal  reserve  bank  on  points  in  its  own  district  will 
not  change  the  deposits  of  the  Federal  reserve  bank.  They  will 
only  increase  the  balances  of  member  banks  on  one  side  and  de- 
crease them  on  the  other. 

“The  reserve  balances  of  member  banks  will  increase  in  the  Fed- 
eral reserve  bank  just  as  much  as  they  will  decrease,  and  it  is 
quite  likely  in  the  course  of  business  that  the  reserve  banks  will 
carry  more  than  the  required  amount  of  reserve  with  the  Federal 
reserve  banks,  and,  instead  of  having  to  continually  make  up  their 
reserve,  there  will  be  just  as  much  necessity  for  reducing  the  ac- 
cumulations in  the  reserve  account. 

“Items  on  member  banks  outside  of  the  depositing  member 
oank’s  district  should  not  count  as  reserve,  as  the  reserve  bank 
will  have  no  account  to  reimburse  itself  from  when  the  items  are 
deposited.  A separate  account  should  be  carried  for  each  member 
bank  which  deposits  items  on  member  banks  outside  of  its  own 
district,  as  these  items  will  be  paid  by  a method  described  under 
the  heading,  ‘Relations  Between  Federal  Reserve  Banks  Them- 
selves’ and  the  transit  account  of  the  member  bank  will  be  charg- 
ed and  the  reserve  account  credited. 

“The  transit  accounts  should  be  used  only  for  items  -which  are 
deposited  on  member  banks  outside  of  the  district  and  on  other 
Federal  Reserve  Banks. 

“Member  banks  should  not  draw  checks  on  the  transit  account, 
but  should  draw  all  checks  on  the  reserve  account.  This  would 
do  away  with  any  necessity  for  figuring  a discount  rate  of  interest 
if  the  transit  accounts  should  be  drawn  below  the  amount  of  col- 
lected funds. 

“As  the  member  bank  itself  is  the  only  one  which  knows  the 
amount  its  reserve  should  be,  the  Federal  reserve  banks  cannot  as- 
certain whether  a bank  is  drawing  below  its  reserve  or  not,  except 
when  reports  are  received  from  the  national  bank  examiner.  It  is 
up  to  the  member  banks  to  control  their  own  reserves  and  to  the 
bank  examiner  to  see  that  they  live  up  to  the  law  in  this  respect. 


70 


•u  relations  between  the  federal  reserve  banks 

THEMSELVES. 

“Items  sent  from  the  one  Federal  reserve  bank  to  another  should 
bear  the  endorsements  of  Federal  reserve  banks  which  handle,  so 
that  it  may  be  known  from  the  check  how  it  has  been  routed.  This 
is  particularly  necessary  if  items  are  missent. 

“With  regard  to  clearing  items  between  the  Federal  reserve 
banks,  a system  is  suggested  under  which  no  Federal  reserve  bank 
will  have  to  open  an  account  with  another.  Instead  each  Federal 
reserve  bank  will  carry  an  account  with  the  Federal  reserve  bank 
to  be  selected  as  the  central  clearing  bank. 

“The  Federal  Reserve  Bank  of  Chicago  is  well  situated  to  act  as 
the  clearing  bank  on  account  of  its  central  location  and  the  ex- 
cellent transportation  facilities  between  all  the  Federal  reserve 
cities. 

“The  suggested  plan  of  carrying  a portion  of  the  gold  reserve  of 
the  Federal  reserve  banks  in  Washington  would  require  the  ship- 
ment of  an  enormous  amount  of  gold  from  all  the  Federal  reserve 
cities,  which,  besides  being  a great  expense,  as  some  of  the  gold 
would  have  to  come  from  as  far  away  as  San  Francisco,  would 
also  take  away  the  gold  from  the  west  where  it  is  needed  for  cir- 
culation. On  the  Pacific  Coast  probably  less  than  10  per  cent,  of 
the  circulation  is  in  paper  money. 

“Lender  the  present  United  States  Sub-Treasury  system  gold  is 
divided  among  nine  cities  from  New  York  to  San  Francisco,  and  it 
would  seem  advisable  to  leave  it  where  it  is,  so  that  when  it  has  to 
be  shipped  to  member  banks  it  will  not  have  to  go  far  and  the  ex- 
press rate  will  be  reduced  to  a minimum. 

“It  is  also  desirable  to  hold  the  expense  of  the  Federal  reserve 
bank  down  as  far  as  possible,  in  view  of  the  fact  that  there  are 
twelve  banks,  each  with  a separate  organization  which  will  create 
a large  overhead  expense. 

“The  Federal  reserve  bank  which  will  act  as  the  clearing  bank 
will  have  little  or  no  expense  attached  to  this  part  of  its  business 
and  it  would  only  make  an  unnecessary  additional  expense  by  de- 
positing the  reserves  in  Washington. 

“Under  the  attached  plan  proposed  reserve  banks  could  make  up 
the  deficiencies  in  their  balances  carried  with  the  clearing  reserve 
bank  by  purchasing'  exchange,  and  gold  shipments  would  be  less 
necessary  under  this  plan  than  they  would  be  if  the  plan  is  adopted 
of  carrying  the  reserves  in  Washington. 

“Under  the  plan  of  clearing  through  a Federal  reserve  bank  each 
Federal  reserve  bank  would  know  how  it  stood  at  the  end  of  each 
day’s  business,  as  the  items  would  be  cleared  and  settled  for  every 
day.  The  cost  of  buying  exchange  to  increase  balances  with  the 
clearing  Federal  reserve  bank  could  be  assessed  on  the  member 
banks  which  deposited  the  items  in  each  Federal  reserve  bank  and 
could  be  added  by  the  Federal  reserve  bank  to  the  cost  of  handling 
the  checks  for  the  member  banks,  and  in  turn  charged  to  the 
drawers  of  the  checks  by  the  member  banks,  provided  they  saw  fit 
to  charge  the  drawers. 


71 


“It  is,  however,  likely  that  a member  bank  would  absorb  this 
cost  itself,  except  where  the  drawers  do  not  carry  satisfactory  ac- 
counts. 

“With  regard  to  the  incidental  rules,  regulations,  etc.,  it  does 
not  seem  desirable  to  fix  a limit  of  twenty-five  miles  from  each 
member  bank,  thus  denying  the  member  bank  the  privileges  of 
the  Federal  reserve  bank  for  the  collection  of  items  on  banks  lo- 
cated within  twenty-five  miles  of  the  member  bank.  Inasmuch 
as  the  items  can  be  charged  up  to  the  account  of  the  bank  upon 
which  they  are  drawn  when  they  are  deposited,  checks  will  reach 
the  Federal  reserve  bank  for  presentation  in  nearly  all  cases  just 
as  quickly  as  they  would  reach  the  bank  upon  which  drawn  if 
sent  direct  by  the  member  bank. 

“Members  situated  in  the  Federal  reserve  cities  should  be  per- 
mitted to  deposit  items  on  other  member  banks  in  the  same  city 
provided  the  depositing  bank  or  the  member  bank  upon  which  the 
checks  are  drawn  is  not  a member  of  the  local  clearing  house. 

“Referring  to  items  bearing  ‘No  protest'  and  ‘Wire  non-pay- 
ment’ instructions,  the  instructions  should  appear  on  the  letters 
accompanying  the  items. 

“Provisions  regarding  charging  interest  when  balances  are  be- 
low the  net  amount  of  collected  funds,  should  be  omitted,  as  pre- 
viously explained. 

“It  would  be  very  unsatisfactory  to  the  member  banks  if  the 
Federal  reserve  banks  when  they  first  start  business  receive  items 
on  only  certain  banks  in  the  larger  cities  in  the  districts.  These 
banks  would  be  compelled  to  ship  currency  or  buy  exchange  to 
settle  for  the  items  charged  to  their  account  by  the  Federal  re- 
serve bank,  as  they  would  not  in  turn  be  able  to  deposit 
items  which  they  would  have  on  all  the  other  member  banks  in 
the  district.  Instead  of  picking  out  a number  of  the  larger  cities 
to  start  with,  the  Federal  reserve  banks  could  take  a certain  num- 
ber of  counties  in  each  state  and  gradually  increase  the  number 
until  the  whole  district  was  covered.  In  this  way  there  would  be 
very  little  burden  upon  member  banks,  as  the  items  would  be 
cleared  in  certain  zones  in  which  the  members  would  have  items 
drawn  on  each  other. 

“With  regard  to  checks  on  non-member  banks,  I can  find  noth- 
ing in  the  Act  which  permits  the  acceptance  by  Federal  reserve 
banks  of  items  for  deposit  drawn  on  non-member  banks.  If  the 
Act  can  be  construed  to  permit  Federal  reserve  banks  to  receive 
such  items,  I do  not  think  it  would  be  good  policy,  as  there  would 
be  a much  greater  chance  for  non-member  banks  becoming  mem- 
bers if  the  checks  were  not  handled  by  the  Federal  reserve  banks 
than  if  these  facilities  were  extended. 

“Checks  on  non-member  banks  will  circulate  at  a discount  and  it 
is  quite  probable  that  non-member  banks  will  arrange  for  a place 
of  redemption  for  their  checks  through  the  clearing  houses  in  the 
Federal  reserve  cities  in  the  effort  to  make  their  checks  circulate 
on  a par  with  the  items  on  member  banks  of  the  Federal  reserve 
system.” 


72 


BUSINESS  OF  FEDERAL  RESERVE  BANKS. 

The  business  operations  of  the  Federal  reserve  banks  will  be 
fundamentally  of  two  distinct  kinds: 

1.  Rediscounting-  for  member  banks. 

2.  Purchasing  specified  kinds  of  paper  in  the  open  market 
under  the  conditions  provided  by  the  act  itself. 

From  another  point  of  view  the  business  operations  may  be 
divided  as  follows: 

1.  Domestic  transactions. 

2.  Foreign  exchange  transactions. 

The  subject  may  first  be  considered  under  the  latter  division 
and  then  inquiry  may  be  made  as  to  how  the  business  should  be 
viewed  from  the  point  of  view  of  the  division  or  classification 
first  suggested. 

DOMESTIC  BUSINESS. 

The  domestic  business  of  the  reserve  banks  will,  as  stated, 
consist  primarily  in  the  rediscounting  of  paper  for  member 
banks  and  in  the  purchase  of  paper  in  the  open  market.  In 
either  case  the  question  is  raised  how  the  act  must  be  regarded 
as  applying  to  the  nature  of  the  paper  dealt  in.  As  will  be  seen 
from  a survey  of  its  provisions,  the  framers  of  the  measure  at- 
tempted to  throw  about  the  rediscount  and  open  market  trans- 
actions a series  of  very  careful  and  detailed  restrictions  intend- 
ed to  assure  the  liquidity  and  unquestionable  commercial  char- 
acter of  the  obligations  which  were  thus  taken  over  by  the 
reserve  banks. 

COMMERCIAL  PAPER. 

It  is  recognized  that  the  question  what  should  be  accepted 
as  commercial  paper  eligible  for  rediscount  under  the  act  is 
one  of  great  difficulty,  as  well  as  one  which  must  inevitably 
affect  in  a very  profound  way  the  operations  of  the  reserve  banks 
from  the  beginning. 

“Upon  the  endorsement  of  any  of  its  member  banks, 
any  Federal  Reserve  Bank  may  discount  notes,  drafts  and 
bills  of  exchange  arising  out  of  actual  transactions;  that  is, 
notes,  drafts  and  bills  of  exchange  issued  or  drawn  for  agri- 
cultural, industrial,  or  commercial  purposes,  or  the  proceeds 
of  which  have  been  used  or  are  to  be  used  for  such  purposes, 
the  Federal  Reserve  Boai'd  to  have  the  right  to  determine  or 
define  the  character  of  the  paper  thus  eligible  for  discount 
within  the  meaning  of  this  act.” 

Later,  (in  section  14)  Federal  Reserve  Banks  are  given 
power  to 

“Purchase  and  sell  in  the  open  market  at  home  or  abroad 
either  from  or  to  domestic  or  foreign  banks,  firms,  corpora- 
tions or  individuals,  cable  transfers  and  bankers’  acceptances 
and  bills  of  exchange  of  the  kinds  and  maturities  by  this  act 
made  eligible  for  rediscount,  with  or  without  the  endorse- 
ment of  a member  bank.” 


73 


There  are  other  provisions  in  the  act  which  limit  or  modify 
these  fundamental  clauses  but  consideration  of  them  may  be 
deferred  for  the  present. 

According  as  the  “character  of  the  paper  thus  eligible  for  dis- 
count” is  defined,  the  scope  of  the  business  to  be  granted  to 
the  banks  and  to  be  undertaken  by  them  will  be  greater  or 
less  and  the  volume  of  their  operations,  and  consequently  the 
extent  of  their  aid  to  the  community  will  be  greater  or  less. 
Various  questions  of  a specific  nature,  therefore,  arise  at  once 
of  which  the  following  may  be  mentioned: 

1.  What  is  commercial  paper  in  the  sense  in  which  the 
term  is  used  to-day? 

2.  Is  this  popular  definition  correct,  and  should  it  be  ac- 
cepted by  the  Reserve  Board? 

3.  If  not  correct  can  an  immediate  change  in  definition 
safely  be  made? 

4.  Is  there  any  need  for  different  treatment  of  the  paper 
made  available  for  rediscount  with  the  endorsement  of  a mem- 
ber bank,  and  that  to  be  purchased  in  the  open  market? 

5.  What  is  a commercial,  agricultural  or  industrial  trans- 
action? 

6.  To  what  classes  of  paper  does  it  normally  give  rise,  and 
how  can  a banker  assure  himself  that  a given  piece  of  paper 
had  arisen  from  such  a transaction? 

7.  What  distinction  if  any  should  be  drawn  between  paper 
that  grows  out  of  such  a transaction,  and  paper  whose  proceeds 
are  to  be  used  in  such  a transaction? 

By  answering  these  questions  the  basis  will  have  been  pro- 
vided for  a thorough  analysis  of  the  provisions  of  the  Federal 
reserve  act  in  regard  to  the  use  of  commercial  paper  as  a basis 
for  rediscount. 

The  language  used  in  the  section  of  the  Federal  reserve  act 
with  reference  to  commercial  paper  is  modelled  upon  language 
used  in  many  proposals  of  legislation  which  preceded  the  reserve 
act  and  whose  purpose  was  that  of  sufficiently  limiting  the 
types  of  paper  presented  for  rediscount  so  as  to  avoid  the  use 
of  bank  funds  in  two  general  classes  of  transactions.  The  lan- 
guage was  intended  to  be  negative  rather  than  positive  and 
the  two  types  of  transactions  which  were  regarded  with  disfavor 
were  the  following: 

(a)  Those  growing  out  of  speculative  transactions  or  in- 
volving the  use  of  funds  for  promotion  of  speculation. 

(b)  Those  involving  the  regular,  steady,  provision  of  capital 
for  investment  purposes  with  the  idea  of  supplying  to  different 
enterprises  an  additional  element  of  business  support  quite 
different  from  the  mere  use  of  banking  as  an  aid  to  the  financ- 
ing of  current  transactions. 

Of  course  in  addition  to  these  negative  limitations  it  was 
intended  by  the  language  employed  to  prevent  the  banks  from 


74 


rediscounting  paper  that  necessitated  a too  remote  maturity  and 
naturally  to  avoid  the  rediscounting  of  paper  whose  soundness 
was  not  altogether  assured. 

At  the  present  time  commercial  paper  as  employed  by  credit 
institutions  and  banks  generally  includes  the  following  types: 

(a)  Ordinary  notes  signed  by  an  individual,  firm  or  corpo- 
ration and  promising  to  pay  a specified  amount  either  on  de- 
mand or  at  a stated  time. 

(b)  Drafts  secured  by  documents  (bills  of  lading,  etc.) 
which  are  discounted  by  banks  and  which  bear  two  commer- 
cial names. 

(c)  Ordinary  notes  signed  by  individuals,  firms  or  corpo- 
rations either  on  demand  or  on  time  and  protected  by  stock, 
bonds  or  other  collateral  with  a collateral  loan  agreement. 

(d)  Ordinary  notes  of  the  kind  already  specified  protected 
by  a chattel  mortgage  on  crops  and  the  like. 

Investigation  shows  that  of  these  types  of  what  is  ordinarily 
called  commercial  paper  today  the  ordinary  single-name  paper 
constitutes  a substantial  proportion.  Opinions  differ  as  to  the 
relative  amount  of  this  paper  as  compared  with  other  classes, 
but  there  is  general  agreement  as  to  its  importance.  Some  large 
concerns  estimate  that  fully  90%  of  their  business  is  transacted 
on  the  basis  of  such  single-name  paper.  The  commercial  trans- 
actions growing  out  of  or  represented  by  such  paper  are  in 
general  as  shown  in  the  following  hypothetical  case: 

A purchases  goods  for  his  fall  trade  amounting  to,  say, 
$1,000,000  from  the  X.  Y.  Z.  Co.  of  New  York  City.  These  are 
bought  on  open  account  with,  say,  ninety  days’  credit.  A gives 
no  paper  in  exchange  for  them,  the  seller  having  simply  his 
general  knowledge  of  A’s  credit  to  protect  him.  The  X.  Y.  Z.  Co., 
however,  offers  A a discount  for  cash  within  a specified  time 
(say,  thirty  days),  and  an  additional  discount  for  immediate  cash 
(say  within  ten  days).  In  order  to  get  this  cash,  A applies  to  his 
bank,  making  a full  statement  of  his  transactions  and  is  granted 
a loan  for  which  he  gives  ordinary  promissory  notes.  With  the 
funds  thus  obtained  he  pays  off  the  X.  Y.  Z.  Co.,  getting  the 
advantage  of  the  discount,  then  settles  with  the  bank  as  the 
goods  are  taken  up  by  consumers  and  paid  for.  The  transaction 
is  distinctly  a “commercial”  one  and  the  paper  growing  out  of  it 
is  commercial  paper  in  the  ordinary  sense.  In  Europe,  however, 
the  X.  Y.  Z.  corporation  would  have  insisted  upon  being  paid 
by  a note  signed  by  A and  would  then  have  sold  this  paper  or 
discounted  it.  Or  A might  have  induced  his  bank  to  accept 
drafts  from  the  X.  Y.  Z.  Co.  (properly  protecting  the  institu- 
tion) in  which  case  the  paper  would  have  been  an  acceptance 
bearing  the  name  of  the  bank  and  the  X.  Y.  Z.  Co.  It  is  de- 
sirable to  stimulate  the  growth  of  true  commercial  paper  of  the 
latter  class  as  rapidly  as  possible  for  several  reasons.  The  clos- 
ing up  of  the  transaction  by  the  giving  of  the  paper  is  in  itself 
a good  thing,  leading  to  conservatism  and  caution  in  the  busi- 


75 


ness.  The  tendency  of  this  method  is  also  to  distribute  loans 
much  more  widely,  thereby  creating  a much  better  and  more  even 
division  of  business  among  banks.  The  paper  thus  created  can  be 
sold  and  traded  in,  and  thereby  a wider  market  with  much  greater 
competition  and  consequently  lower  rates  of  interest,  can  be 
secured.  Furthermore  such  paper  bears  on  its  face,  ordinarily, 
the  certification  that  it  grows  out  of  a real  “commercial  trans- 
action.” The  effort  should  undoubtedly  be  to  work  steadily 
toward  a situation  which  would  encourage  the  development  of 
this  kind  of  paper  and  would  eliminate  or  reduce  as  rapidly  as 
possible  the  present  method  of  trading  on  the  basis  of  one-name 
paper. 

SINGLE  NAME  PAPER  PROVIDED  FOR. 

The  conclusion  that  seems  to  be  necessarily  reached  in  con- 
nection with  this  subject,  however,  is  that  the  Federal  Reserve 
Act  distinctly  contemplates  and  provides  for  the  use  not  only  of 
two-name  but  also  of  single  name  commercial  paper.  This  is 
seen  in  the  fact  that  the  act  in  the  sections  already  referred  to 
provides  for  the  rediscounting  not  only  of  paper  whose  proceeds 
have  been  used  in  the  particular  classes  of  transactions  referred 
to  but  also  of  that  whose  proceeds  are  “to  be  used”  in  that 
connection.  At  one  time  during  the  progress  of  the  bill  through 
Congress,  the  provision  was  even  broadened  by  the  insertion  of 
words  including  for  rediscount  such  paper  as  might  give  rise  to 
funds  which  “may  be  used”  for  the  purposes  referred  to  in  the 
act.  It  is  believed,  therefore,  that  Congress  clearly  and  un- 
equivocally intended  to  recognize  under  the  provisions  of  the 
law  both  classes  of  paper.  This,  however,  was  upon  the  dis- 
tinct understanding  that  such  paper,  whether  it  bore  one  or  more 
names,  was  not  to  be  admitted  to  rediscount  unless  it  evidently 
arose  from  the  classes  of  transactions  referred  to  or  was  so 
clearly  for  the  purpose  of  providing  funds  for  such  transaction 
as  to  admit  of  no  doubt. 

In  the  second  place,  however,  it  is  believed  that  paper  carry- 
ing two  names  bears  on  the  face  of  it  the  evidence  of  a strictly 
commercial  origin  which  single-name  paper  never  can,  without 
collateral  evidence,  supply.  There  is,  therefore,  a prima  facie 
case  in  favor  of  two-name  paper  which  does  not  exist  in  that  of 
single-name,  and  the  question  is  suggested  how  single-name 
paper,  when  admitted  to  rediscount  as  it  evidently  must  be  under 
the  terms  of  the  law,  shall  be  prevented  from  being  used  as  a 
means  to  obtain  current  capital  or  to  furnish  the  basis  for  specu- 
lative operations.  Various  methods  have  been  currently  sug- 
gested, among  them  the  plan  of  requiring  each  piece  of  paper 
thus  presented  for  rediscount  to  be  accompanied  by  a certificate 
on  the  part  of  its  maker,  or  of  the  endorsing  bank,  or  both, 
that  it  has  originated  in  connection  with  a transaction  of  the 
permitted  kind.  Another  method  that  has  been  put  forward  is 
to  require  such  a general  certificate  on  the  part  of  each  borrower, 
insisting  that  such  certificate  be  made  once  and  for  all,  or  per- 


76 


haps  at  periodical  intervals.  Still  another  suggested  plan  is 
that  of  employing  a form  of  note  which  shall  incorporate  into 
its  own  text  a statement  that  it  represents  funds  whose  use  is 
desired  for  a transaction  of  the  permitted  class.  Of  these 
various  suggestions,  the  latter  is  perhaps  the  best  and  there 
may  be  no  harm  in  putting  it  into  effect,  but  neither  it  nor 
any  of  its  predecessors  would  be  likely  to  meet  the  require- 
ments of  the  case  completely.  It  is  believed  that  this  end  can 
be  accomplished  only  by  some  process  that  will  give  absolute 
assurance  of  the  use  of  the  funds  advanced  by  the  reserve 
banks  in  the  way  contemplated  by  the  law.  Clearly,  how- 
ever, the  absolute  assurance  that  the  particular  sum  of  money 
advanced  by  the  banks  on  rediscounted  paper  has  been  used  in 
the  way  prescribed  cannot  be  obtained  in  practice,  nor  is  there 
any  use  in  obtaining  it,  if  there  be  certainty  that  an  equal  sum 
drawn  from  the  liquid  resources  of  the  concern  receiving  the 
advance  is  so  applied.  The  purpose  of  the  Federal  Reserve 
Act  is  thus  fundamentally  satisfied  if  evidence  be  given  that 
the  advances  made  are  made  for  a commercial  purpose  as 
shown  by  the  fact  that  the  person  or  concern  in  whose  favor 
they  are  made  is  engaged  in  actual  business  of  the  kind  re- 
ferred to  and  is  in  a liquid  condition.  This  fact  can  be  ascer- 
tained only  by  a direct  audit  of  the  affairs  of  the  concern, 
repeated  as  frequently  as  circumstances  may  require,  in  order 
to  renew  the  assurance  of  liquidity  which  is  regarded  as  the 
fundamental  and  essential  test  of  the  good  faith  of  the  con- 
cern in  making  application  for  funds,  not  to  furnish  capital 
for  new  enterprises  or  to  take  the  place  of  capital  that  has 
been  sunk,  but  to  carry  through  short  period  transactions. 

A suggestion  to  which  very  considerable  attention  has 
been  granted  in  responsible  quarters  is  that  of  establishing 
through  action  on  the  part  of  the  Reserve  Board  a so-called 
“differential  rate’’  on  commercial  paper  of  the  classes  referred 
to,  the  rate  required  to  be  charged  by  Federal  reserve  banks 
for  the  rediscount  of  single  name  paper,  being  fixed  at,  say, 
14  of  \%  or  perhaps  at  %%  higher  than  that  to  be  charged 
for  two  name  paper,  the  paper  of  the  two  classes  being  sup- 
posed to  be  of  equal  safety,  and  the  difference  in  rate  being 
designed  merely  to  discriminate  in  favor  of  two-name  paper. 
This  would  probably  be  as  effective  a means  as  any  for  ac- 
celerating the  movement  of  the  business  community  towards 
the  substitution  of  double-name  for  single-name  paper.  Pre- 
cisely how  great  the  discrimination  in  rate  would  have  to  be, 
and  precisely  how  far  it  would  need  to  be  varied  between  the 
several  Federal  reserve  districts  is  a question  that  cannot  posi- 
tively be  answered  pending  the  definite  organization  of  the 
districts  and  the  creation  of  the  banks  as  working  units  in 
each  of  them.  The  idea  is  merely  suggested  here  as  indicating 
a feasible  and  desirable  mode  of  bringing  about  the  end  in  view, 
assuming  of  course  that  the  application  of  the  method  is  care- 


77 


ful  so  that  no  injustice  may  be  done  through  the  charging  of 
the  higher  rate  to  the  paper  which  is  less  favorably  regarded. 

Still  another  plan  is  that  of  restricting  the  total  amount 
of  single  name  paper  admitted  to  rediscount  to  a given  per- 
centage of  the  gross  rediscounts  of  the  reserve  bank  in  ques- 
tion. This  plan  has  been  carefully  considered  and  is  believed 
to  be  desirable.  The  estimates  that  have  been  made  by  au- 
thoritative persons  concerning  the  proper  amount  of  single 
name  paper  in  relation  to  two-name  vary  considerably,  some 
taking  the  ground  that  not  to  exceed  25%  of  the  total  redis- 
counts should  consist  of  single-name  and  others  that  not  less 
than  50%  might  safely  be  allowed  to  consist  of  that  kind  of 
paper.  It  is  believed  that  no  definite  percentage  of  this  kind, 
applicable  to  the  whole  country  could  be  fairly  established. 
Inquiry  has  shown  quite  conclusively  that  in  some  parts  of  the 
country  there  is  much  more  two-name  paper  than  elsewhere, 
business  habits  having  developed  somewhat  differently  in 
different  communities.  The  restriction  of  the  relative  propor- 
tions of  two-name  and  single-name  paper,  through  rules  to 
be  issued  by  the  Federal  reserve  board  and  to  be  applied  by 
the  boards  of  directors  of  the  several  Federal  reserve  banks 
can  be  scientifically  developed  when  it  is  seen  through  the 
early  experience  of  the  banks  in  about  what  proportions  the 
two  classes  of  paper  are  presented  for  rediscount.  It  may 
easily  appear  that  the  proportions  in  which  the  paper  is  offered 
to  the  Federal  reserve  banks  will  vary  quite  materially  from 
those  in  which  it  has  heretofore  been  offered  to  individual  or 
member  banks.  No  definite  relationship  can  be  laid  down  with 
certainty  in  advance.  It  can  only  be  stated  that  wherever  pos- 
sible, the  proportion  of  single-name  paper  allowed  to  figure 
in  the  rediscounts  of  a Federal  reserve  bank  should  be  confined 
to  the  lowest  basis  consistent  with  the  welfare  and  convenience 
of  the  business  community. 

A proposal  worthy  of  mention  in  this  same  connection  but 
requiring  care  in  its  consideration  is  that  note  brokers  who 
sell  single-name  paper  to  banks  of  the  Federal  reserve  system 
shall  be  required  personally  to  endorse  the  paper  they  thus 
dispose  of.  In  support  of  this  proposition  it  is  urged  that  the 
custom  prevailed  in  Europe  and  has  been  found  effective  there. 
This  is  only  partially  true,  conditions  being  quite  different 
abroad  from  what  they  are  here,  but  it  is  probably  the  case  that 
everything  possible  should  be  done  to  stimulate  a greater  degree 
of  responsibility  on  the  part  of  note  brokers.  At  present  there 
are  many  individuals  and  concerns  in  the  note-broking  business 
whose  financial  responsibility  may  be  a matter  of  some  doubt 
and  whose  principal  effort  is  to  dispose  of  as  much  paper  as  they 
can,  thereby  securing  for  themselves  the  largest  possible 
amount  of  commissions.  On  the  other  hand,  it  seems  hardly 
desirable  to  take  a step  that  would  tend  to  produce  a condi- 
tion of  monopoly  or  semi-monopoly  in  the  note  business.  To 


78 


require  endorsements  of  the  kind  referred  to  would  undoubt- 
edly tend  to  drive  the  smaller  concerns  out  of  business  and 
would  likewise  tend  to  promote  the  formation  of  very  large 
corporations  organized  for  the  purpose  of  lending  their  signa- 
tures to  commercial  paper,  thus  making  it  available  for  use 
by  reserve  banks.  In  this  same  group  of  suggestions,  is  the 
recommendation  that  the  note  broker  whose  paper  is  pur- 
chased by  the  reserve  banks  through  member  banks  shall  be 
required  to  be  regularly  examined  and  audited  by  a satisfactory 
accountant.  There  is  no  objection  to  this  requirement  pro- 
vided that  it  be  properly  applied  and  that  the  audit  or  exami- 
nation be  made  under  conditions  that  will  not  be  unreason- 
ably onerous  or  of  a nature  to  entail  unnecessary  or  excessive 
expense  upon  the  broker. 

GENERAL,  SUMMARY. 

Summarizing  these  suggestions,  therefore,  we  may  first  enu- 
merate the  recommendations  which  it  is  believed  are  at  all 
events  not  feasible  at  the  present  time. 

1.  Exclusion  of  single-name  paper  whose  proceeds  are  “to 
be  used”  for  commercial  purposes. 

2.  Narrow  definition  of  the  words  “agricultural,  commercial 
or  industrial  purposes”  or  transactions. 

The  purposes  which  should  undoubtedly  be  sought  and  the 
recommendations  corresponding  thereto  are  as  follows: 

1.  Exclusion  of  all  paper  of  every  kind  from  rediscount 
unless  those  responsible  for  it  are  able  to  make  good  the  con- 
tention that  its  proceeds  are  intended  for  facilitating  or  carry- 
ing out  a genuine  current  business  transaction  of  a kind  that 
shall  be  self-liquidating  within  the  period  set  by  the  language 
of  the  act. 

2.  Requirement  of  all  possible  classes  of  information  on 
the  part  of  bankers,  notebrokers  and  others  bearing  upon  the 
origin  of  the  paper  offered  for  rediscount  and  the  purposes  to 
which  its  proceeds  are  to  be  applied. 

The  detailed  methods  that  have  been  suggested  for  the  at- 
tainment of  these  objects  and  which  it  is  believed  will  prove 
more  or  less  useful  are  as  follows: 

1.  Regular  audit  of  firms  or  corporations  placing  single- 
name paper  on  the  market  in  order  to  assure  their  absolute 
liquidity  and  solvency  and  the  liquidity  of  its  assets. 

2.  Regular  audit  of  note  brokers  in  order  to  insure  abso- 
lute knowledge  of  broker’s  responsibility. 

3.  Endorsement  by  note  broker  of  all  paper  passing  through 
his  hands  and  ultimately  presented  for  rediscount. 

4.  Restriction  of  single-name  paper  to  specified  percent- 
age, say,  25  to  50%,  of  total  paper  rediscounted  by  a reserve 
bank. 

5.  Establishment  of  differential  rate  of  rediscount  for  sin- 
gle-name and  two-name  paper  in  order  to  favor  the  latter  type 
of  security. 


79 


6.  Use  of  specified  form  of  note  or  certificate  intended  to 
indicate  type  of  transaction  giving-  rise  to  paper. 

The  following  points  at  least  are,  however,  deemed  essential 
in  determining  the  practice  to  be  followed  by  reserve  banks: 

1.  Commercial  paper  must  be  broadly  defined  as  includ- 
ing two-name  paper  given  in  lieu  of  cash  for  goods  sold  and 
bearing  the  name  of  maker  and  endorser,  if  discounted,  and 
single-name  paper  which  is  largely  discounted  or  sold  to  pro- 
vide cash  in  anticipation  of  future  purchases  and  sales.  Where 
the  price  of  the  commodity  involved  has  been  fixed,  two-name 
paper,  so  far  as  the  seller  is  concerned,  represents  a closed 
transaction,  whereas  in  the  use  of  single-name  paper,  repre- 
senting as  it  does  principally  money  borrowed  for  future  trans- 
actions, the  price  remains  to  be  fixed  by  seasonal  demand  and 
trade  limitations. 

2.  From  an  economic  standpoint,  two-name  paper  may 
be  regarded  as  having  no  inherent  quality  that  will  develop  in- 
flation, while  single-name  paper  involving,  as  previously  stated, 
future  transactions,  may  (though  not  necessarily)  promote  spec- 
ulation and  thus  develop  price  inflation.  Member  banks,  there- 
fore, should  carefully  analyze  the  business  on  which  single- 
name paper  is  to  be  predicated,  differentiating  sharply,  for  pur- 
poses of  rediscount,  between  that  which  is  to  be  used  to  finance 
accounts  receivable  or  strictly  seasonal  requirements,  and  that 
which  is  to  finance  a floating  debt  or  be  used  for  the  extension 
of  business  that  cannot  be  readily  liquidated. 

3.  Single-name  paper,  secured  or  unsecured,  must  bear  the 
name  of  a solvent  party  whose  responsibility  is  secured  by  the 
filing  of  a satisfactory  statement  made  within  one  year  prior  to 
the  date  of  the  discount,  or  by  the  filing  of  a certified  copy  of 
such  a statement  by  a responsible  person  who  is  m possession 
of  the  original. 

4.  Such  paper  must  bear  the  endorsement  of  a member  bank 
and  be  accompanied  by  a statement  attached  to  its  schedule  of 
application  for  rediscounts,  signed  by  an  officer  of  said  bank, 
to  the  effect  that  to  said  officer’s  best  knowledge  and  belief  the 
proceeds  of  the  notes  discounted  have  been  or  are  to  be  used 
for  commercial,  industrial  or  agricultural  purposes  of  a current 
nature.  Such  schedule  of  application  must  be  classified  (on  a 
standard  form),  giving  the  kinds  of  business  supported  by 
individual  items. 

5.  Such  paper  must  have  a maturity  at  the  time  of  discount 

of  not  more  than  ninety  days,  except  in  the  case  of  notes,  drafts 
and  bills  drawn  or  issued  for  agricultural  purposes  or  based  on 
live  stock,  which  may  have  a maturity  of  not  exceeding  six 
months.  The  total  amount  of  such  six  months’  paper  to  be 
taken  by  any  one  Federal  Reserve  Bank,  however,  shall  not 
exceed  per  cent,  of  the  capital  of  said  bank. 

6.  Any  Federal  Reserve  Bank  may  discount  acceptances 
(bank  or  other  than  consignee)  based  upon  the  importation  or 


80 


exportation  of  goods  and  which  have  at  the  time  of  discount 
a maturity  of  not  more  than  three  months  and  are  endorsed  by 
at  least  one  member  bank.  The  amount  of  acceptances  so 
discounted  shall  at  no  time  exceed  one-half  the  paid  up  capital 
and  surplus  of  the  bank  for  which  the  rediscounts  are  made. 

7.  Two-name  paper  must  bear  the  names  of  two  solvent 
parties,  the  maker  and  the  endorser.  The  responsibility  of  one 
being  reasonably  assured  by  customary  credit  statements,  or 
the  opinion  of  an  officer  or  director  of  a member  bank  formally 
stated  and  filed. 

8.  Such  paper  must  bear  the  endorsement  of  the  member 
bank  and  be  submitted  on  a schedule  separate  and  apart  from  that 
used  for  single-name  paper,  but  similarly  classified  as  to  the  kinds 
of  business  involved. 

9.  Such  paper  must  have  a maturity  at  the  time  of  discount 
of  not  more  than  ninety  days,  except  as  provided  by  the  act  for 
six  months’  paper  based  upon  agricultural  products  or  live  stock. 

10.  It  is  recommended  as  a general  practise  that  at  least  one 
party  involved  in  the  discount  of  two-name  paper  be  required  to 
file  a statement  with  the  member  bank. 

FUNCTION  OF  OPEN  MARKET  OPERATIONS. 

At  this  point  some  attention  may  be  given  to  the  question 
of  open  market  operations.  Section  14  of  the  Federal  Reserve 
Act  grants  the  Federal  Reserve  Bank  power  to  deal  in  gold 
coin  and  bullion  to  buy  and  sell  bonds  and  notes  of  a public 
character,  to  purchase  and  sell  bills  of  exchange  with  or  with- 
out its  endorsement  and  to  establish  such  agencies  as  it  may 
deem  best  for  the  purpose  of  dealing  in  bills  of  this  kind.  It  calls 
for  the  formation  of  certain  rules  and  regulations  by  the  Federal 
Reserve  Board,  involving — 

(a)  Open-market  purchases  of  commercial  paper  and  ex- 

change ; 

(b)  Government  bonds  and  short-time  Government,  State, 

municipal,  and  other  bonds,  notes,  and  bills. 

With  reference  to  these  classes  of  business  the  following  points 
are  noted: 

(a)  The  scope  of  open-market  operations,  so  far  as  the  ques- 
tion of  individual  and  corporate  credit  is  concerned,  must  rest  large- 
ly with  the  purchasing  bank,  subject  to  suggestions  based  upon 
analyses  by  the  credit  department  of  the  Federal  Reserve  Board. 
It  will  be  necessary,  however,  for  the  Federal  Reserve  Board  from 
time  to  time  to  make  regulations  involving— 

1.  The  amount  of  any  particular  paper  permitted  to  be  held 

by  any  one  bank  and  the  aggregate  amount  of  such 
paper  to  be  held  by  all  the  Federal  Reserve  banks; 

2.  The  total  amount  of  all  open -market  purchases  held  by  all 

Federal  Reserve  banks. 


81 


The  necessity  for  such  regulations  is  apparent.  The  open-market 
section  of  the  bill  was  primarily  provided  to  give  the  Federal 
Reserve  Board  the  necessary  economic  control  of  the  domestic 
money  market  and  to  preserve  a proper  equilibrium  in  inter- 
national relations.  Specific  rules  formulated  in  advance  on  this 
general  subject  are,  of  course,  impracticable.  The  rules  when  es- 
tablished will,  moreover,  have  to  be  varied  somewhat  from  time 
to  time. 

(b)  The  Federal  Reserve  Board  should  from  time  to  time  for- 
mulate rules  and  regulations  covering  purchases  and  sales  involved 
in  subdivision  (b)  of  Article  14,  limiting  the  volume  of  securities 
which  it  would  be  appropriate  for  any  one  Federal  Reserve  bank 
to  purchase,  and  also  in  contemplation  of  the  aggregate  volume 
held  by  all  such  Federal  Reserve  banks.  The  intent  of  the  act  is 
to  have  such  securities  purchased,  with  the  exception  of  Govern- 
ment bonds,  somewhat  approximate  the  fluid  quality  of  commercial 
paper.  It  will  therefore  be  inadvisable  for  banks  to  purchase  any 
revenue  bills  or  bonds  that  are  issued  in  the  aggregate  in  excess 
of  the  amount  of  revenues  received  by  the  respective  States,  dis- 
tricts, or  municipalities  beyond  the  amount  which  experience  shows 
was  received  on  the  annual  average  of  the  last  preceding  two  years. 
No  bills  or  bonds  should  be  purchased  which  are  not  issued  in 
anticipation  of  specific  levies  or  revenues.  Federal  Reserve  banks 
should  file  with  the  Federal  Reserve  Board  comprehensive  state- 
ments involving  the  experience  of  all  districts  and  municipalities  in 
relation  to  taxes  and  revenues  received,  and  amounts  borrowed  for 
the  last  preceding  two  years,  when  purchases  are  contemplated. 

Banks  desirous  of  purchasing  irrigation,  drainage,  and  reclama- 
tion district  obligations  maturing  within  six  months  shall,  prior  to 
making  such  purchases,  file  with  the  Federal  Reserve  Board  a 
statement  of  revenues,  expenditures,  and  borrowings  of  such  dis- 
tricts for  the  last  preceding  three  years.  In  all  cases  both  as  to 
State,  municipal,  or  irrigation,  drainage  or  reclamation  short-time 
instruments,  where  any  question  is  involved  not  herein  covered, 
specific  action  will  be  taken  by  the  Federal  Reserve  Board  based 
upon  the  facts  presented. 

The  open  market  provisions  of  the  act  are  of  very  large 
importance  in  two  ways: 

(a)  In  permitting  Federal  reserve  banks  to  place  their 
resources  at  the  disposal  of  constituent  or  member  banks  even 
when  such  constituent  or  member  banks  do  not  apply  for  re- 
discounts, inasmuch  as  the  law  allows  the  reserve  banks  to  buy 
the  paper  directly  in  the  open  market  and  thereby  to  insure 
the  placing  of  its  funds  in  active  use  should  occasion  demand. 

(b)  In  permitting  a reserve  bank  in  one  district  which  has 
surplus  funds  to  relieve  the  strain  upon  reserve  banks  in  other 
districts  by  buying  such  surplus  of  paper  as  may  have  c-ome 
upon  the  market  in  those  districts,  thereby  preventing  banks 
in  these  places  from  being  compelled  to  refuse  to  grant  redis- 
counts in  cases  where  the  supply  of  paper  is  in  excess  of  the 


capacity  of  the  banks  to  take  care  of  at  the  seasons  of  the  year 
when  an  exceptional  degree  of  strain  has  made  itself  felt. 

Much  has  been  said  of  the  effect  of  the  open  market  trans- 
action in  enabling  the  reserve  bank  to  get  funds  out  into  active 
use  at  times  when  they  would  otherwise  be  out  of  use. 
There  are  some  limitations  upon  this  idea  that  have  prob- 
ably not  been  sufficiently  considered.  Under  ordinary  cir- 
cumstances, the  reserve  banks  will  not  compete  with  their  own 
members  and  while  they  may  be  expected  to  compete  with 
certain  individual  banks  even  among  their  own  stockholders 
under  special  or  peculiar  circumstances  they  will  naturally  do 
so  only  when  such  action  is  rather  urgently  demanded.  A quite 
different  condition  of  affairs  will  exist  with  reference  to  the  open 
market  transactions,  relating  to  paper  put  out  in  other  dis- 
tricts. In  so  far  as  this  represents  a field  of  activity  which  is  not 
occupied,  or  occupied  only  in  a limited  degree  by  individual 
banks,  the  reserve  banks  may  be  expected  to  become  active 
buyers  of  paper  originating  in  such  other  districts. 

FOREIGN  EXCHANGE  OPERATIONS. 

The  second  principal  element  in  the  business  of  the  Federal 
reserve  banks  will  be  that  of  dealing  in  foreign  exchange  and 
of  transmitting  funds  abroad.  Precisely  what  relation  this 
business  will  bear  to  the  general  business  of  the  reserve  banks 
themselves,  cannot  be  predicted,  and  will  undoubtedly  vary 
considerably  from  bank  to  bank,  according  to  the  particular 
type  of  business  developed  in  each  of  the  several  institutions. 
At  some  of  the  banks  the  foreign  exchange  service  may  at 
times  be  of  preponderating  importance  while  at  others  it  is 
entirely  possible  that  the  work  may  be  sporadic  or  incidental. 
In  the  case  of  some  of  the  banks,  it  may  be  found  desirable  to 
conduct  the  exchange  operations  entirely  through  the  medium 
of  other  reserve  banks. 

Nevertheless  the  conduct  of  the  exchange  operations  for 
the  system  as  a whole  will  be  of  primary  importance  and  will 
amount  to  a general  control  of  the  foreign  financial  and  mone- 
tary relationships  of  the  United  States. 

The  provision  of  the  Federal  Reserve  Act  relating  to  foreign 
exchange  operations  is  found  in  section  14  where  it  is  provided 
that  the  banks  shall  have  authority: 

“To  open  and  maintain  banking  accounts  in  foreign  coun- 
tries appoint  correspondents,  and  establish  agencies  in  such 
countries  wheresoever  it  may  deem  best  for  the  purpose  of 
purchasing,  selling,  and  collecting  bills  of  exchange,  and  to 
buy  and  sell,  with  or  without  its  endorsement,  through  such 
correspondents  or  agencies,  bills  of  exchange  arising  out  of 
actual  commercial  transactions  which  have  not  more  than 
ninety  days  to  run  and  which  bear  the  signature  of  two  or 
more  responsible  parties.” 


83 


The  banks  are  also  authorized: 

‘‘To  buy  and  sell  at  home  or  abroad  bonds  and  notes  of 
the  United  States  and  bills,  notes,  revenue  bonds  and  war- 
rants with  a maturity  from  the  date  of  purchase  of  not 
exceeding  six  months,  issued  in  anticipation  of  the  collection 
of  taxes  or  in  anticipation  of  the  receipt  of  assured  revenue.” 

In  section  13,  it  is  provided  that: 

“The  rediscount  by  any  Federal  Reserve  Bank  or  any  bills 
receivable  and  of  domestic  and  foreign  bills  of  exchange,  and 
of  acceptances  authorized  by  this  act,  shall  be  subject  to 
such  restrictions,  limitations,  and  regulations  as  may  be  im- 
posed by  the  Federal  Reserve  Board.” 

It  is  thus  seen  that  the  Federal  Reserve  Act  makes  express 
provision  not  only  for  dealing  in  foreign  exchange  and  securities, 
but  also  for  the  mechanism  necessary  for  such  exchange  trans- 
actions and  finally  for  the  regulation  and  control  both  of  the 
foreign  agencies  and  of  the  transactions  themselves  by  the 
Federal  Reserve  Board  through  its  regulations. 

It  is  therefore  necessary  to  indicate  first  of  all  the  condi- 
tions under  which  the  reserve  banks  should  operate  abroad  and 
their  relations  to  the  member  banks  engaged  in  similar  busi- 
ness as  well  as  to  one  another. 

It  is  recommended  that  above  all  in  dealing  in  foreign  ex- 
change the  Federal  Reserve  Banks  should  act  together  as  a 
unit.  While  this  is  not  necessary,  and  while  the  reserve  banks 
could  undoubtedly  do  a successful  foreign  exchange  business 
independently  of  one  another,  each  establishing  its  own  agencies 
as  it  saw  fit,  it  is  believed  that  better  results  would  be  obtained 
if  the  reserve  banks  at  least  had  general  knowledge  of  one 
another’s  transactions  and  were  required  to  act  together  so  far 
as  conditions  would  permit.  It  is,  therefore,  recommended  that 
the  policy  to  be  prescribed  with  reference  to  foreign  exchange 
by  the  Federal  Reserve  Board  shall  be  uniform  and  that  there 
shall  be  as  little  opportunity  as  possible  for  the  development  of 
conflicting  or  unnecessarily  duplicating  orders  and  policies. 
Moreover,  it  is  believed  that  the  establishment  of  agencies  by 
each  and  every  one  of  the  banks  would  be  an  unnecessary  ex- 
pense. It  is,  therefore,  suggested  that  in  selecting  agents  or  in 
establishing  offices  abroad,  the  reserve  banks  shall  be  required 
to  act  jointly.  Joint  offices  for  all  the  reserve  banks  will  ulti- 
mately need  to  be  established  in  each  of  the  principal  financial 
centers  in  foreign  countries  and  pending  the  time  that  such 
joint  office  is  established,  it  is  recommended  that  consent  be 
given  only  to  the  establishment  of  agencies  which  shall  jointly 
act  for  all  of  the  Federal  Reserve  Banks.  The  details  of  this 
proposal  will  be  fully  considered  in  connection  with  the  ques- 
tion of  establishing  branches  in  general. 


84 


GENERAL  SCOPE  OF  FOREIGN  OPERATIONS. 

It  is  possible  that  the  Foreign  operations  of  the  Federal 
Reserve  Bank  will  not  be  large  at  first.  The  ordinary  clearance 
operations  of  commerce  are  handled  eagerly  and  adequately  by 
banks  already  engaged  in  foreign  exchange.  Except  in  cases  of 
stress  all  exchange  is  easily  absorbed  at  the  current  price.  It  will 
be  necessary,  however,  for  the  Reserve  Bank  to  stand  ready  to 
negotiate  all  bills  of  exchange  that  may  come  to  it  from  mem- 
ber banks  in  outlying  communities  or  from  other  Reserve  Banks. 
Rather  should  the  position  of  the  Reserve  Bank  in  this  field 
be  that  of  an  overflow  reservoir,  recouping  its  balances  from 
the  credits  created  abroad  by  other  Banks  engaged  in  such 
business  and  making  such  advances  from  time  to  time  as  may 
be  necessary  to  facilitate  absorption  of  exchange  or  protect 
gold  reserves,  that  is  to  say,  not  interfering  with  member  banks 
but  operating  rather  from  a broad  economic  standpoint.  The 
Reserve  Bank  can  act  as  the  medium  through  which  the 
necessities  of  the  Post  Office  for  Foreign  Exchange  to  meet  the 
requirements  of  the  Foreign  Money  Order  Division  may  be 
liquidated  and  otherwise  as  foreign  Fiscal  Agent  of  the  Gov- 
ernment, but  must  give  due  consideration  to  the  development  of 
offsetting  business.  It  may  be  needless  for  many  of  the  Reserve 
Banks  to  enter  the  foreign  field,  much  depending  upon  their  co- 
operation through  a common  agency.  It  is  a matter  of  grave  doubt 
as  to  whether  it  will  be  necessary  for  more  than  one  to  do  so  at 
the  start  as  even  under  present  conditions  the  Foreign  Exchange 
market  for  all  banks  engaged  in  Foreign  Exchange  wheresoever 
located  is  in  New  York  City.  However  this  may  be,  the  rela- 
tions of  the  Federal  Reserve  Banks  and  either  member  or  non- 
member banks  in  the  Foreign  Exchange  field  should  be  sym- 
pathetic. The  Federal  Reserve  Bank  should  have  perfected  all 
the  machinery  to  make  it  a dominant  leader  to  marshal  the  col- 
lective forces  of  the  exchanges  in  times  of  stress. 

FOREIGN  REPRESENTATIVES. 

Arrangements  will  necessarily  be  made  as  soon  as  feasible  to 
secure  banking  connections  in  all  of  the  principal  banking  centres 
of  the  world.  It  will  be  unnecessary  to  establish  actual  branches 
in  all  those  places  where  there  are  already  good  banking  facili- 
ties unless  the  Federal  Reserve  Board  should  deem  it  wise  to  do 
so  after  a general  survey  of  the  whole  field.  The  existing  facili- 
ties afforded  by  foreign  banks  or  even  by  branches  of  American 
banks  will  afford  all  that  would  be  supplied  by  an  independent 
branch.  Whether  it  will  be  deemed  best  in  spite  of  this  fact  to 
create  actual  branches  with  independent  banking  houses  and 
assigned  capital  in  all  places  where  good  banking  facilities  already 
exist  is  a matter  of  policy  as  to  which  no  definite  statement  can 
here  be  made.  The  general  question  of  branches  and  the  crea- 
tion of  such  branches  abroad  will  be  given  special  attention  at  a 
later  point  to  which  attention  is  accordingly  directed.  It  will  at  all 


85 


events  be  found  that  in  not  a few  places  the  appointment  of  repre- 
sentatives will  probably  be  necessary,  owing  to  the  fact  that  ade- 
quate banking  facilities  for  the  promotion  of  American  commerce 
are  not  available  there. 

CONDUCT  OF  BUSINESS. 

It  is  recommended  that  the  services  of  a foreign  exchange 
expert  of  known  ability  who  is  at  the  same  time  familiar  with 
banking  in  its  broadest  sense  shall  be  secured.  This  expert  should 
probably  be  given  the  rank  of  an  officer  corresponding  to  that  of 
a vice  president  in  an  ordinary  bank.  Under  his  direction  and 
through  the  medium  of  a deputy  acting  as  his  assistant,  the 
foreign  operations  of  the  bank  should  be  carried  on.  This  foreign 
exchange  expert  will  find  it  desirable  at  the  outset  to  secure  with- 
out delay  connections,  whether  through  the  creation  of  branches 
or  not  as  may  later  be  decided,  with  the  principal  European  centres 
particularly  including  London,  Paris,  Berlin,  Hamburg,  Frankfort, 
Antwerp,  Amsterdam,  Rome,  Naples,  Vienna,  St.  Petersburg  and 
Zurich.  Exchange  should  be  acquired  by  him  with  prudence  and 
judgment  as  to  money  market  conditions  at  all  points,  the  major 
portion  of  resulting  balances  being  of  course  held  in  London.  His 
funds  thus  obtained  should  be  employed  in  the  purchase  of  short- 
term paper  and  bills  of  exchange  as  specified  under  the  law  ac- 
cording as  business  requirements  demand.  The  rule  to  be  ob- 
served, however,  should  be  that  of  having  the  holdings  of  ex- 
change in  the  most  liquid  form.  Dealings  in  exchange  should  be 
carried  on  both  at  home  and  abroad,  but  it  would  probably  be  in- 
advisable to  enter  the  field  as  an  aggressive  operator.  The  policy 
to  be  constantly  observed  is,  unquestionably,  that  of  providing  a 
secondary  reserve  for  the  reserve  bank.  Precisely  how  much 
should  be  regularly  invested  in  exchange  with  this  object  in  view, 
cannot  be  laid  down  in  any  definite  manner,  and,  as  will  be  later 
indicated,  could  at  most  be  limited  to  a given  percentage  of  the 
operations  of  the  reserve  bank,  although  even  that  is  not  in  this 
discussion  definitely  fixed.  The  funds  invested  in  exchange  will 
of  course  return  an  income,  but  the  principal  object  should  be 
as  already  stated,  that  of  providing  the  secondary  reserve  re- 
ferred to.  It  is  probable  that  ultimately  a considerable  quantity 
of  ordinary  exchange  operations  will  be  undertaken  by  the  re- 
serve banks  engaged  in  this  branch  of  business,  but  no  steps 
should  be  taken  to  force  such  a growth,  it  being  permitted  rather 
to  gain  a natural  development  incident  to  the  regular  progress 
of  the  institution  carrying  on  the  operations. 

For  the  purpose  of  making  clear  the  details  of  policy  which 
must  be  observed  in  carrying  on  the  foreign  exchange  business 
of  the  reserve  banks  upon  the  basis  already  described  a complete 
set  of  regulations  designed  to  govern  the  management  of  the 
foreign  exchange  department  of  the  reserve  bank  has  been  worked 
out  as  an  element  in  this  discussion. 

They  are  as  follows: 


86 


I. 


Manager. 

(a)  There  shall  be  in  charge  of  the  Foreign  Exchange  De- 
partment of  each  Federal  Reserve  Bank,  if  such  a department  be 
developed,  an  official  to  be  known  as  the  “Manager  of  the  For- 
eign Exchange  Department,”  selected  by  the  Board  of  Directors, 
who  shall  receive  an  annual  remuneration  to  be  decided  by  the 
Board. 

(b)  This  official  shall  have  been  actively  engaged  and  be  ex- 
perienced in  Foreign  Exchange  operations. 

(c)  Upon  appointment,  the  official  mentioned  shall  furnish 

bond  of  good  and  sufficient  surety  in  amount  of  $ 

(d)  The  duties  of  the  manager  of  the  exchange  department 
shall  be  to  control  the  funds  of  the  Reserve  Bank  carried  in 
Foreign  Exchange.  He  shall  have  entire  charge  of  the  buying  and 
selling  of  all  checks,  drafts,  demand  or  time,  cable  transfers,  Bills 
of  Exchange,  gold  coin,  bullion,  and  any  other  instruments,  se- 
curities, properties  and  commodities  that  the  Reserve  Bank  is 
authorized  to  buy  or  sell  under  the  Law  subject  to  the  Regula- 
tions hereinafter  provided. 

(e)  The  manager  shall  have  the  power  to  employ,  through 
the  channels  provided  in  the  Regulations,  such  assistants  as  he 
may  deem  necessary  to  carry  on  the  business  of  his  Depart- 
ment. He  shall  make  such  recommendations  as  he  may  deem 
advisable  for  the  expansion  or  improvement  of  the  Bank’s  For- 
eign Exchange  operations  to  the  President. 

(f)  He  or  his  assistants  shall  through  the  usual  clerical  chan- 
nels submit  daily  to  the  President  a report  of  his  operations, 
showing  purchases  and  sales  of  exchange,  prices  at  which  such 
purchases  and  sales  were  made  and  the  disposition  of  the  Reserve 
Bank’s  foreign  balances.  It  shall  be  his  duty  or  that  of  his  des- 
ignated assistants  to  authorize  all  transactions,  approving  all 
purchases,  sales  and  other  operations,  subject  to  the  rules  and 
regulations  of  the  Board  of  Directors.  There  shall  also  be 
submitted  to  the  Board  of  Directors  and  to  the  Federal  Reserve 
Board  a monthly  report  and  such  other  reports  as  the  Federal  Re- 
serve Board  may  deem  advisable  or  necessary. 

(g)  He  shall  have  general  supervision  under  the  direction  of 
the  President  of  the  exchange  operations  of  all  of  the  bank’s 
foreign  agencies  and  branches.  The  Board  of  Directors  shall  ar- 
range for  systematic  reports  from  all  Foreign  Agents  and  Mana- 
gers of  Foreign  Branches. 

(h)  There  shall  also  be  selected  by  the  Board  of  Directors  an 
Assistant  Manager,  who  shall  act  as  general  assistant.  Before 
receiving  appointment  he  shall  comply  with  the  requirements  of 
paragraphs  B and  C He  shall  receive  a compensation  to  be  de- 
cided by  the  Board. 


87 


II. 

Funds  to  Be  Invested  In  Foreign  Exchange. 

(a)  Unless  at  the  express  direction  of  the  Board  of  Directors 
or  the  Federal  Reserve  Board,  there  shall  at  no  time  be  invested 
in  Foreign  Exchange  an  amount  exceeding  ....  percentum  of  the 
Reserve  Bank’s  demand  liabilities  after  deducting  from  the  total 
of  such  demand  liabilities  the  total  of  gold  and  lawful  money  on 
hand  or  in  transit  to  the  Bank,  such  sum  invested,  however,  not 
to  include  the  working  capital  of  any  branch  that  may  be  es- 
tablished in  accordance  with  the  law.  Any  Federal  Reserve  Bank 
not  regularly  engaged  in  Foreign  Exchange  operations  may  at  the 
discretion  of  its  Board  of  Directors,  invest  in  Foreign  Exchange 
or  transact  any  and  all  Foreign  business  eligible  under  the  law 
and  clear  such  transactions  with  foreign  countries  through  the 
medium  of  the  Foreign  Department  of  any  other  Reserve  Bank 
that  may  be  actively  engaged  in  Foreign  operations,  and  such 
other  Federal  Reserve  Bank  shall  separately  record  any  and  all 
Foreign  transactions  it  may  perform  for  any  Reserve  Bank  inde- 
pendent of  its  own  operations,  and  shall  render  a separate  and 
distinct  accounting  therefor,  and  may  receive  a compensation 
from  such  other  Federal  Reserve  Bank  for  so  acting,  such  com- 
pensation to  be  fixed  by  the  Federal  Reserve  Board  on  the  basis 
of  the  pex'iodical  turnover. 

(b)  When  gold  coin,  or  bullion  is  purchased  in  foreign  coun- 
tries, out  of  the  amount  invested  by  a Reserve  Bank  in  foreign 
exchange,  for  the  purpose  of  importation  into  the  United  States, 
such  amount  shall  immediately  be  deducted  from  the  total  car- 
ried as  Foreign  Exchange,  and  shall  be  regarded  as  part  of  the 
gold  reserve  of  the  Bank. 

(c)  When  importations  of  Gold  are  desired,  at  the  discretion 
of  the  Board  of  Directors  or  at  the  direction  of  the  Federal 
Reserve  Board,  Banks  or  Bankers  may  be  employed  to  import  Gold 
for  the  account  of  a Federal  Reserve  Bank.  In  such  cases  the 
gold  coin  or  bullion  must  be  consigned  to  the  Federal  Reserve  Bank 
making  the  advance  and  shall  be  regarded  as  part  of  the  Gold 
Reserve  of  the  Federal  Reserve  Bank,  when  in  transit. 

(d)  No  clean  Bill  of  Exchange  drawn  on  parties  other  than 
Banks  or  Bankers  shall  be  negotiated  by  a Federal  Reserve  Bank 
without  the  endorsement  of  a member  Bank. 

(e)  Clean  Bills  of  Exchange  drawn  on  Banks  or  Bankers  at 
longer  time  than  sight,  (such  maturities,  however,  not  to  exceed 
ninety  days  sight)  may  be  negotiated  by  a Federal  Reserve  Bank 
upon  the  guarantee  of  acceptance  of  a member  Bank. 

(f)  Documentary  Bills  of  Exchange  drawn  on  parties  other 
than  Banks  or  Bankers  at  longer  time  than  sight,  provided,  how- 
ever, at  not  longer  than  ninety  days  sight,  and  where  the  docu- 
ments are  deliverable  upon  acceptance  may  be  purchased  by  a 
Federal  Reserve  Bank  only  with  the  endorsement  of  a member 
Bank. 

(g)  All  documentary  Bills  of  Exchange  drawn  on  Banks  or 

88 


Bankers  of  whatsoever  tenor  in  accordance  with  Section  13  of 
the  Federal  Reserve  Act  may  he  negotiated  by  the  Federal  Re- 
serve Bank  with  the  guarantee  of  acceptance  of  a member  Bank. 

(h)  Cable  transfers,  checks,  drafts,  and  bills  of  exchange 
drawn  by  responsible  Banks  or  Bankers,  at  the  discretion  of  the 
Manager,  may  be  purchased  by  the  Federal  Reserve  Bank,  sub- 
ject to  regulations  of  the  Board  of  Directors. 

(i)  The  liability,  direct  or  contingent,  unless  secured,  of  any 
Bank  or  Banker  member  or  non-member  shall  at  no  time  exceed 
. . . percentum  of  the  capital,  surplus  and  undivided  profits  of 
such  Bank  or  Banker  where  the  amount  of  capital,  surplus  and 
undivided  profits  is  published  by  requirement  of  law.  Where 
such  capital,  surplus  and  undivided  profits  is  not  so  determinable, 
to  not  exceed  an  amount  to  be  fixed  as  a line  by  the  Board  of 
Directors  subject  to  review  by  the  Federal  Reserve  Board. 

(j)  The  outstanding  liability  of  any  foreign  individual,  firm, 
corporation,  Bank  or  Banker,  by  reason  of  acceptance  on  unma- 
tured Bills  of  Exchange  held  or  re-discounted  by  the  Reserve 
Bank  shall  at  no  time  exceed  . . . percentum  of  the  capital,  sur- 
plus and  undivided  profits  of  such  Bank  or  corporation,  and  where 
the  capital,  surplus  or  undivided  profits  are  not  so  determin- 
able, to  not  exceed  an  amount  to  be  fixed  by  the  Board  of  Di- 
rectors, subject  to  review  by  the  Federal  Reserve  Board. 

(k)  The  liability  of  any  individual,  firm  or  corporation  as 
drawer  or  endorser  of  any  check,  draft,  bill  of  exchange,  or  other 
instrument  negotiated  by  a Federal  Reserve  Bank  in  its  foreign 
operations  shall  not  exceed  a line  to  be  fixed  by  the  Board  of  Direc- 
tors, subject  to  review  by  the  Federal  Reserve  Board,  and  a record 
shall  be  kept  of  the  total  liabilities  of  each  individual,  firm,  or 
corporation. 

(l)  A Federal  Reserve  Bank  shall  not  purchase  and  have 
outstanding  at  any  time  in  unmatured  drafts  drawn  on  Foreign 
points,  where  the  documents  underlying  such  drafts  are  to  be 
surrendered  against  payment  only,  an  amount  in  excess  of 
. . . percentum  of  the  total  amount  available  for  use  in  For- 
eign Exchange  operations  by  such  Federal  Reserve  Bank. 

(m)  A Federal  Reserve  Bank  shall  purchase  Foreign  gold 
coins  of  fineness  fixed  under  the  laws  of  the  country  where  such 
coins  were  minted  at  the  mint  price  of  $20.6718+  per  fine  ounce 
whenever  such  coins  are  presented  to  it,  and  such  coins  when- 
soever and  howsoever  acquired  shall  constitute  a part  of  the 
Gold  Reserve  of  the  Bank ; providing,  however,  that  at  no  time 
does  such  amount  of  Foreign  Gold  coins  exceed  in  amount  . . . 
percentum  of  the  amount  of  Gold  the  Bank  is  obliged  to  main- 
tain by  law. 

(n)  Whenever  a Federal  Reserve  Bank  purchases  cable  trans- 
fers from  member  or  nonmember  Banks  or  Bankers,  or  any  other 
parties  whatsoever,  payment  for  the  equivalent  shall  not  be  made 
until  the  Reserve  Bank  is  advised  by  telegraph  of  the  receipt  of 
such  payment  by  its  Foreign  Agent  or  Branch  unless  otherwise 
guaranteed. 


89 


(o)  Whenever  the  Federal  Reserve  Bank  sells  cable  transfers, 
it  shall  be  in  receipt  of  payment  before  it  may  direct  such 
transfer. 

(p)  On  all  purchases  or  sales  of  Bills  of  Exchange  and  other 
instruments  except  cable  transfers  by  a Reserve  Bank,  payment 
shall  be  made  in  the  case  of  purchase  to,  and  in  the  case  of  sale 
by,  a Federal  Reserve  Bank  immediately  upon  delivery  of  the  Bills 
of  Exchange  or  other  instruments  purchased  or  sold. 

(q)  Any  or  all  of  the  restrictions  imposed  by  these  regula- 
tions may  be  temporarily  suspended  by  the  Federal  Reserve  Agent 
subject  to  review  by  the  Federal  Reserve  Board. 

III. 

Co  rresp  ondents. 

(a)  There  may  be  selected  as  required  in  each  principal  bank- 
ing centre  of  the  world  at  least  one  bank  or  banker  as  corres- 
pondent subject  to  the  consent  of  the  Federal  Reserve  Board.  From 
time  to  time  or  as  the  requirements  of  increased  business  may 
direct,  and  subject  to  the  consent  of  the  Federal  Reserve  Board, 
the  number  of  correspondents  in  any  banking  centre  may  he  in- 
creased to  two,  except  as  provided  in  the  following  paragraph. 

(b)  Wherever  possible,  all  correspondents  of  the  Federal  Re- 
serve Banks  shall  be  branches  of  American  banks  established  in 
such  foreign  banking  centres,  and  where  there  may  be  more 
than  one  branch  of  an  American  Bank  the  business  of  the  Fed- 
eral Reserve  Bank  shall  be  distributed  among  such  Branches  in 
the  approximate  ratio  that  the  several  banks’  capital  and  sur- 
plus shall  bear  to  each  other. 

(c)  Such  correspondent  shall  render  a daily  report  of  re- 
ceipts, disbursements,  discounts,  and  any  and  all  operations  under- 
taken at  the  direction  of  or  for  the  account  of  a Federal  Reserve 
Bank. 

(d)  Such  correspondent  shall  render  a monthly  statement  of 
the  account  of  each  Federal  Reserve  Bank  showing  in  detail  all 
entries  to  its  account  and  a memorandum  of  all  interest  accrued 
and  charges,  showing  such  charges  in  detail.  It  shall  further 
send  a monthly  schedule  of  all  Bills  of  Exchange,  drafts  or  other 
instruments,  or  other  property  that  it  may  hold  on  behalf  of  a 
Federal  Reserve  Bank,  indicating  amount,  drawee  or  acceptor, 
maturity,  and  collateral  to  such  instrument,  if  any. 

(e)  Such  correspondent  shall  once  each  week  provide  each 
Reserve  Bank  with  a statement  of  the  contingent  liabilities  of  the 
Reserve  Bank  by  virtue  of  endorsement  on  Bills  of  Exchange  or 
other  instruments  which  have  been  discounted  or  sold  on  be- 
half of  and  for  the  account  of  the  Reserve  Bank. 

(f)  There  shall  exist  between  the  Reserve  Banks  and  corres- 
pondents a secret  code  suitable  to  the  transaction  of  their  opera- 
tions and  messages  under  such  code  shall  be  protected  by  a cipher 
in  the  possession  of  the  senior  officers  of  the  Reserve  Banks,  the 
managers  and  their  immediate  assistants. 


90 


IV. 


Branches. 

(a)  The  Board  of  Directors  of  each  Federal  Reserve  Bank  may 
from  time  to  time,  subject  to  the  consent  of  the  Federal  Reserve 
Board,  establish  such  foreign  branches  as  may  be  deemed  neces- 
sary or  expedient,  and  unless  at  the  express  direction  of  the 
Board  of  Directors  or  the  Federal  Reserve  Board  each  Branch 
shall  use  (as  fixed  working-  capital)  an  amount  not  in  excess  of 
. . . percentum  of  such  Reserve  Bank’s  demand  liabilities  after 
deducting-  from  such  liabilities  the  amount  of  gold  and  lawful 
money  on  hand  or  in  transit  to  the  Bank. 

(b)  All  Foreign  branches  shall  be  officered  by  the  following, 
seniority  in  the  order  given: 

1 • — ■ Manager. 

2 — Assistant  Manager. 

3 — Accountant. 

(c)  These  Officers  shall  receive  remuneration  to  be  fixed  by 
the  Board  of  Directors. 

(d)  The  Manager  shall  have  entire  charge  of  the  Branch,  sub- 
ject to  the  direction  of  the  Federal  Reserve  Bank  or  banks  creat- 
ing such  Branch.  His  duties  shall  consist  of  selecting  the  Branch’s 
investments,  developing  new  business,  buying  and  selling  Bills  of 
Exchange,  gold  coin,  bullion,  obligations  of  the  United  States,  or 
any  other  security  eligible  by  law  to  be  negotiated,  subject  to 
the  Regulations  of  the  Home  Office.  He  and  his  assistant  shall 
be  responsible  for  all  monies,  securities  and  any  and  all  assets 
of  the  Branch  and  shall  make  such  provision  for  their  safe  guard- 
ing as  may  be  deemed  necessary. 

(e)  The  Assistant  Manager  shall  have  charge  of  the  staff 
and  the  office,  and  shall  assume  charge  in  the  absence  of  the 
Manager. 

(f)  The  Accountant  shall  have  entire  charge  of  the  accounts 
and  records  of  the  Branch.  He  and  his  assistant  or  assistants 
shall  make  such  examinations  from  time  to  time  as  they  may 
deem  necessary  or  as  they  may  be  directed.  He  shall  render 
a daily  balance  sheet  to  the  Manager  and  shall  submit  to  the 
Reserve  Bank  such  statements  of  the  affairs  of  the  Branch  as 
are  required  by  the  Regulations.  In  the  absence  or  disability 
of  both  the  Manager  and  Assistant  Manager,  the  Accountant 
shall  assume  charge  of  the  Branch. 

(g)  A Branch  shall  make  a daily  report  by  mail  of  its  opera- 
tions to  the  Reserve  Bank,  accompanying  which  shall  appear  the 
copy  of  the  balance  sheet  of  such  Branch  as  of  the  close  of  busi- 
ness the  preceding  day,  and  shall  submit  a weekly  report  of  all 
contingent  liabilities  by  endorsement  of  Bills,  etc.,  sold  or  dis- 
counted, and  shall  further  submit  a list  of  all  liability  or  individ- 
uals, firms  or  corporations  to  the  Branch  whether  as  drawer, 
endorser,  guarantor  or  acceptor. 


91 


(h)  On  the  last  day  of  each  calendar  month  the  books  of  a 
branch  shall  take  up  in  its  Profit  and  Loss  Accounts  and  Expense 
Accounts,  all  interest,  commissions,  expenses  and  all  other  deter- 
minable incomes  or  expenditures,  and  an  analysis  thereof  shall  be 
submitted  over  the  Manager’s  signature  to  the  Reserve  Bank,  in 
duplicate — one  copy  to  the  President  of  the  Reserve  Bank,  and 
the  other  to  the  manager  of  the  foreign  exchange  department. 

(i)  A schedule  of  all  Bills  of  Exchange,  drafts,  checks,  notes, 
or  other  securities  and  properties  held  by  the  Branch  shall  be  sub- 
mitted once  each  month;  such  schedule  shall  indicate  amount, 
drawee,  acceptor  or  payor,  tenor,  maturity,  and  collateral,  if  any. 

(j)  As  of  the  close  of  business  the  last  days  of  February,  May, 
August,  and  November,  the  books  of  each  branch  shall  be  closed, 
clearing  into  Profit  and  Loss  all  amounts  standing  or  accrued  as 
income,  or  expense,  and  after  charging  off  all  bad  debts,  the 
balance  in  Profit  and  Loss  shall  be  transferred  to  the  Reserve 
Bank. 

(k)  All  losses  shall  be  reported  to  the  Reserve  Bank  over 
the  signatures  of  at  least  two  officers.  Assets  of  questionable 
value  shall  be  reported  to  the  Reserve  Bank,  and  upon  confir- 
mation from  the  Reserve  Bank,  may  be  written  off. 

(l)  No  clean  bill  of  exchange,  unless  drawn  by  a bank  or 
banker,  shall  be  purchased  by  any  branch  except  with  the  con- 
sent of  at  least  two  of  the  three  officers  of  the  Branch  or  a 
line  on  any  name  may  be  fixed  by  at  least  two  Officers  of  the 
Branch,  within  which  line  the  clean  bills  of  any  individual,  firm  or 
corporation,  may  be  bought.  All  matters  of  credit  and  responsi- 
bility of  parties  shall  be  subject  to  the  concurrence  of  at  least  two 
Officers  and  further  subject  to  approval  by  the  Home  Office. 

(m)  No  draft  drawn  under  a Letter  of  Credit  may  be  pur- 
chased by  any  Branch  unless  a specimen  of  Letter  of  Credit  and 
signature  of  the  party  who  issued  it  are  on  file,  or  unless  confirma- 
tion has  been  received  direct  that  such  a credit  is  open  and  that 
drafts  thereunder  may  be  negotiated. 

(n)  The  Manager  may  at  his  discretion  deal  in  or  make  loans 
on  gold  coin  or  bullion,  and  shall  cause  to  be  rendered  to  the 
Reserve  Bank  a detailed  statement  of  such  operations.  The  state- 
ment to  indicate  face  value,  weight,  fineness,  and  specie  value. 

V. 

Accounting  of  Foreign  Exchange  Department. 

(a)  The  regulations  covering  the  accounting  system  of  the 
Federal  Reserve  Bank  shall  apply  to  the  Branches. 

(b)  The  books  of  the  Foreign  Exchange  Department  shall  be, 
as  follows:  1.  General  Ledger;  2.  General  Balance  Sheet;  3.  Journal; 
4.  Cash  Receipts  Book;  5.  Cash  Disbursements  Book;  6.  Agency 
Ledger;  7.  Branch  Ledger;  8.  Liability  Ledger;  9.  Remittance  Rec- 
ords; 10.  Draft  Records,  and  any  other  books  that  may  become 
necessary  from  time  to  time  in  the  opinion  of  the  Auditor. 


92 


(c)  All  books  shall  be  bound  books,  except  in  cases  where 
expediency  requires  it,  the  books  may  be  loose  leaf,  to  which  excep- 
tions, however,  the  Auditor  must  concur,  and  such  provisions  that 
he  may  make  in  the  use  of  loose  leaf  records  shall  be  complied 
with. 

(d)  The  General  Ledger  of  the  department  shall  carry  the 
control  on  all  accounts  in  the  department,  showing-  each  account 
separately,  except  in  such  cases  as  the  liabilities  (see  paragraph 
N)  wherein  one  amount  may  be  shown  to  control  all  accounts. 
The  General  Ledger  shall  be  posted  daily  in  ink  and  each  page 
footed  in  ink  and  carried  forward. 

(e)  The  General  Balance  sheet  shall  be  a columnar  book  show- 
ing the  daily  balances  in  each  account  on  the  General  Ledger. 

(f)  The  Journal  shall  take  up  all  entries  not  properly  handled 
in  the  Cash  Receipts  or  Disbursements  Books,  Remittance  or  Draft 
Records.  It  shall  be  a columnar  book  and  after  proof,  a recapit- 
ulation thereof  shall  be  taken  off  and  handed  to  the  General 
Bookkeeper. 

(g)  The  Cash  Receipts  Book  shall  record  all  receipts  of  cash 
or  checks  from  whatsoever  sources.  All  receipts  of  cash  unless 
controlled  by  preceding  entries,  shall  be  acknowledged,  a copy  of 
which  receipt  shall  be  taken  up  by  the  Officer  signing  the  original, 
and  handed  to  the  Auditor.  After  proof  each  night  a recapit- 
ulation shall  be  taken  off  and  handed  to  the  General  Bookkeeper 
of  the  Department. 

(h)  The  Cash  Disbursements  book  shall  record  all  cash  paid 
or  checks  drawn.  Unless  such  payment  is  controlled  by  previous 
enti'y  no  disbursement  may  be  made  without  an  order,  initialed 
by  the  Chief  Deputy,  his  assistant,  or,  in  their  absence,  some 
temporary  authority  conferred  by  the  President.  After  proof 
each  night,  a recapitulation  shall  be  taken  off  and  handed  to  the 
General  Bookkeeper  of  the  Department. 

(i)  The  Agency  Ledger  shall  record  the  transactions  between 
the  Bank  and  its  Foreign  Agents.  It  shall  be  posted  each  day 
from  the  books  of  original  entry,  proved  to  the  control  on  the 
General  Ledger  at  least  once  a week,  reconciled  and  closed  quar- 
terly. As  statements  are  received  monthly,  they  shall  be  veri- 
fied to  the  postings  made  from  returns  indicated  by  the  Daily 
Advices  of  the  Foreign  Agents.  All  charges  incidental  to  the 
agent’s  operations  must  be  recorded  in  a book  provided  for  the 
purpose  and  verified  and  initialed  by  the  Deputy  or  his  assistant, 
and  subsequently  checked  and  approved  by  the  Auditor. 

(j)  The  Branch  Ledger  shall  show  the  accounts  of  the  Branch- 
es with  the  Head  Office,  this  Ledger  shall  be  posted  from  books 
of  original  entry,  proved  once  a week  to  the  general  control  and 
reconciled  to  the  Branches’  monthly  statement. 

(k)  The  Liability  Ledger  shall  indicate  the  names  of  all  par- 
ties upon  whose  endorsements  or  guarantees  of  acceptance  Ex- 
change has  been  bought.  The  total  of  the  line  allowed,  whether 
. . . percentum  of  the  capital  and  surplus  or  the  line  approved  by 


93 


the  Board  (see  Sec.  II,  Paragraph  i. ).  As  drafts  mature  or  are 
accepted,  and  as  the  responsibilities  of  the  parties  terminate,  the 
amount  of  such  draft  shall  be  deducted  from  the  outstanding 
line.  It  shall  also  show  the  liability  of  all  parties  by  acceptance 
on  unmatured  Bill  of  Exchange  (see  Section  II,  Paragraph  J). 
The  balances  appearing  against  any  and  all  parties  shall  be  re- 
ported to  the  Board  of  Directors  each  week. 

(l)  The  Remittance  Records  shall  contain  the  detail  of  all 
drafts,  cable  transfers,  Bills  of  Exchange,  etc.,  purchased  and 
charged  to  agents  or  Branches.  This  record  may  be  loose  leaf  if 
expediency  so  demands  and  the  Auditor  approves.  No  bill  may  be 
entered  without  an  authorization  of  purchase  signed  by  the  Deputy 
or  his  assistant.  A recapitulation  shall  be  given  to  the  General 
Bookkeeper  at  the  close  of  each  day. 

(m)  The  Draft  Book  shall  record  all  sales  of  checks,  drafts, 
cable  transfers  and  other  instruments  drawn  on  and  to  be  credited 
to  any  agent  or  Branch.  There  shall  be  kept  therein  all  the 
detail  of  such  transaction  and  no  draft,  check,  cable  transfer,  etc., 
may  be  drawn  or  consummated  without  an  authorization  signed 
by  the  Deputy  or  his  assistant.  After  proof,  a recapitulation 
shall  be  handed  to  the  General  Bookkeeper  of  the  Department. 

(n)  Among  the  control  accounts  on  the  General  Ledger  shall 
appear  an  account  Liability  by  Endorsement — per  contra.  Cus- 
tomers’ Liability  on  Discounted  Paper.  This  figure  shall  be  altered 
from  time  to  time  by  means  of  a Journal  entry.  As  reports  are 
received  from  the  agents  and  Branches  (See  Sec.  Ill,  paragraph  F 
and  Sec.  IV,  paragraph  G)  the  entries  herein  ordered  shall  be 
made. 

(o)  All  expenses  of  the  Foreign  Exchange  Department,  except 
those  involved  in  the  operation  of  accounts  such  as  commissions, 
charges,  Foreign  Revenue  stamps,  etc.  (See  Section  V,  Paragraph 
i),  shall  be  charged  to  Expense  Account  maintained  on  the  Gen- 
eral books  of  the  Bank  and  supported  by  a detail  book. 

(p)  All  interest  receivable  or  payable,  commissions  and  other 
determinable  income  shall  be  accrued  monthly;  all  profits  on  ex- 
change operations  shall  be  determined  and  set  up  in  Profit  and 
Loss  account  quarterly,  and  all  Branch  returns  shall  be  carried 
to  Profit  and  Loss  and  an  estimate  of  the  Profit  for  the  over- 
lapping month  shall  be  made  and  passed,  based  on  the  return  on 
the  average  capital  used  the  quarter  just  received. 

(q)  All  Profits  and  Losses  shall  be  cleared  into  the  General 
Profit  and  Loss  accounts  of  the  Bank  on  the  last  days  of  June 
and  December.* 


*This  sketch  of  the  accounting  for  the  foreign  exchange  de- 
partment is  correlated  directly  with  the  accounting  plan  presented 
in  Appendix  I.  A different  set  of  records,  embodying  the  same 
principles,  is  presented  in  Appendix  II  and  accompanying  forms. 


94 


ORGANIZATION  OF  FEDERAL  RESERVE  BOARD. 

It  is  now  necessary  to  devote  some  attention  to  the  central  con- 
trolling mechanism  of  the  system.  The  organization  of  the  Federal 
Reserve  Board  is  partly  prescribed  by  the  Federal  Reserve  act,  and 
is  partly  left  to  be  determined  by  the  Board  itself  under  the  general 
authority  assigned  to  it  by  that  act.  In  so  far  as  its  organization 
is  prescribed,  no  discussion  needs  to  be  offered.  In  so  far  as  its 
organization  is  left  optional  with  itself  it  will  presumably  deter- 
mine the  lines  to  be  followed,  when  it  is  created.  There  is  no 
intention  in  this  report  of  anticipating  what  the  Board  will  do 
with  reference  to  its  own  internal  organization.  In  discussing 
the  organization  of  the  Federal  reserve  banks  which  are  under 
the  direct  oversight  of  the  Federal  Reserve  Board,  it  is,  how- 
ever, necessary  to  indicate  in  general  terms  such  elements  of 
the  organization  of  the  Federal  Reserve  Board  as  will  undoubt- 
edly be  required  for  the  proper  control  of  the  type  of  organi- 
zation contemplated  for  the  several  banks.  In  this  report,  there- 
fore, effort  is  made  simply  to  suggest  those  features  of  Federal 
Reserve  Board  organization  which  necessarily  must  be  indicated 
as  complementary  to  the  organization  of  the  reserve  banks. 

The  outlines  of  what  is  believed  to  be  desirable  in  organizing 
the  Federal  Reserve  Board  may  be  best  set  forth  in  the  form  of 
by-laws,  as  follows: 

BY-LAWS  OF 

THE  FEDERAL  RESERVE  BOARD 
(Organized  in  1914  under  the  Federal  Reserve  Act). 

ARTICLE  I. 

The  Chairman. 

The  Secretary  of  the  Treasury  shall  be  chairman  of  the  Board. 
In  the  absence  or  disability  of  the  chairman,  the  Comptroller  of  the 
Currency  shall  be  vice-chairman.  In  the  event  of  the  absence  or 
disability  of  both  the  chairman  and  the  vice-chairman,  the  Gov- 
ernor, and  in  his  absence  or  disability,  the  Vice-Governor  shall  be 
chairman  pro  tem. 

ARTICLE  II. 

The  Governor. 

Section  1.  The  Governor  of  the  Federal  Reserve  Board  shall  be 
the  active  executive  officer  thereof;  subject,  however  to  such  rides 
and  regulations  as  may  be  incorporated  herein  or  may  from  time 
to  time,  by  resolution,  be  established. 

Section  2.  The  Governor  shall  have  custody  of  such  funds  as 
may  be  in  possession  of  the  Board.  He  shall  open  and  maintain 
bank  accounts  in  such  institutions  as  the  Board  may  by  resolu- 
tion designate,  and  shall  sign  checks  drawn  on  such  accounts. 

Section  3.  The  Governor  shall  keep  or  cause  to  be  kept  a con- 
tinuing record  of  all  receipts  and  disbursements  of  the  Board. 


95 


Section  4.  The  Governor  shall  have  general  charge  of  all  busi- 
ness of  the  Board  not  specifically  assigned  by  resolution  to  any 
individual  member  thereof,  or  to  the  committee  of  the  whole.  He 
shall  submit  a summary  of  such  business  at  each  succeeding  meet- 
ing of  the  Board. 

Section  5.  The  Governor  shall  have  custody  of  the  seal  of  the 
Board  and  shall  have  power  to  affix  the  same  to  all  instruments 
requiring  it  under  the  authority  of  the  Board.  Such  instruments 
shall  be  attested  by  the  Secretary. 


ARTICLE  III. 

The  Vice-Governor. 

Section  1.  In  the  absence  or  disability  of  the  Governor,  his 
powers  shall  be  exercised  and  his  duties  discharged  by  the  Vice- 
Governor,  and  in  the  absence  or  disability  of  both  of  these  officers, 
such  powers  shall  be  exercised  and  such  duties  discharged  by  such 
member  of  the  Board  as  it  may,  by  resolution,  designate  chair- 
man pro  tern. 

Section  2.  It  shall  be  the  duty  of  the  Vice-Governor  to  co- 
operate with  the  Governor  in  the  administration  of  the  general  busi- 
ness of  the  Board. 

ARTICLE  IV. 

The  Secretary. 

Section  1.  The  Board  shall  appoint  a Secretary,  whose  duty 
it  shall  be  to  attend  all  meetings  of  the  Board,  and  keep  a record  of 
its  proceedings. 

Section  2.  The  Secretary  shall  assist  the  Governor  and  the  Vice- 
Governor  in  the  administration  of  the  general  business  of  the  Board. 
He  shall  have  general  supervision  of  scientific  and  expert  divisions, 
devoting  himself  particularly  to  supplying  the  Board  with  detailed 
information  regarding  domestic  and  international  business  and 
banking  relations,  and  such  other  data  as  the  Board  may  from  time 
to  time  require. 

Section  3.  In  the  absence  or  disability  of  the  Secretary,  his 
duties  shall  be  performed  by  such  member  of  the  Board  or  the 
general  staff  as  said  Board  may,  by  resolution,  appoint  Secretary 
pro  tem. 

ARTICLE  V. 


The  Seal. 


The  following  is  an  impression  of  the  seal  adopted  by  the  Board. 
(Seal.) 


ARTICLE  VI. 


Meetings. 


Section  1.  There  shall  be  a stated  meeting  of  the  Board  each 
week  day  except  Saturdays  and  legal  holidays,  at  such  hour  of  the 
day  as  may  from  time  to  time  be  determined  by  resolution  of  said 
Board. 


96 


Section  2.  A majority  of  the  members  present  shall  constitute 
a quorum,  except  that  the  affirmative  vote  of  at  least  five  members 
of  the  Board  shall  be  necessary  to  require  Federal  reserve  banks 
to  rediscount  the  discounted  paper  of  other  Federal  reserve  banks. 

Section  3.  At  least  once  during  each  quarter  there  shall  be  a 
joint  conference  in  Washington  of  members  of  the  Federal  Reserve 
Board  and  the  Federal  Advisory  Council,  at  such  time  as  may  be 
mutually  agreed  upon  by  said  Board  and  said  Council. 

Section  4.  At  all  meetings  of  the  Board  the  following  shall  be 
the  order  of  business: 

(1)  Reading  or  inspection  of  the  minutes  of  the  last  regular 
meeting. 

(2)  Report  of  the  Governor. 

(3)  Report  of  the  Secretary. 

(4)  Reports  of  members  on  assigned  business,  or  relative  to 
their  particular  divisions  or  bureaus. 

(5)  Unfinished  business. 

(6)  Joint  conference  with  officers  or  members  of  Federal  Ad- 
visory Council,  when  scheduled  or  otherwise  arranged. 

(7)  New  business. 

ARTICLE  VII. 

Budget  and  Audit. 

Prior  to  June  and  December  first  of  each  year,  the  chairman 
shall  appoint  a committee  consisting  of  two  members  of  the  Board, 
whose  duty  it  shall  be  to  audit  the  accounts  thereof  for  the  six 
months’  period  for  which  they  shall  have  been  appointed,  and  re- 
port to  the  Board  a tentative  budget  of  expenses  for  the  next  suc- 
ceeding six  months. 

ARTICLE  VIII. 

General  Business. 

Section  1.  There  shall  be  established  by  the  Board  the  follow- 
ing divisions  or  bureaus: 

Bureau  of  Currency  and  Coin. 

Bureau  of  Foreign  Exchange. 

Bureau  of  Clearings  and  Domestic  Exchange. 

Bureau  of  Examination  and  Audit. 

Bureau  of  Reports  and  Statistics. 

Bureau  of  Credit  and  Discounts. 

Section  2.  It  shall  be  the  duty  of  the  Federal  Reserve  Board 
to  provide  for  a periodical  audit  of  the  accounts  of,  and  the  securi- 
ties and  currency  held  by,  the  various  Federal  reserve  agents. 

, Section  3.  The  chairman  shall  once  in  each  six  months  desig- 
nate one  member  of  the  Board  whose  duty  it  shall  be  to  co- 
operate with  its  officers  in  the  general  supervision  of  one  of  its 
bureaus  or  divisions. 


97 


ARTICLE  IX. 

Information. 

Section  1.  All  persons  employed  by  the  Board  shall  keep  invio- 
late its  business,  affairs,  and  concerns,  and  shall  not  disclose  or 
divulge  the  same  to  any  unauthorized  person  whomsoever,  and  any 
employee  who  shall  give  information  contrary  to  this  by-law  shah 
be  liable  to  immediate  dismissal. 

Section  2.  The  action  or  policy  of  the  board  shall  not  be  ex- 
pressed through  any  individual  member,  but  by  its  duly  constituted 
officers,  after  formal  action  by  the  Board. 

ARTICLE  X. 

Amendments. 

These  by-laws  may  be  amended  at  any  regular  meeting  of  the 
Board  by  a majority  vote  of  the  entire  Board,  provided  that  a copy 
of  such  amendment  shall  have  been  delivered  to  each  member  at 
least  three  days  prior  to  such  meeting. 

ARTICLE  XI. 

Rules  and  Regulations. 

Such  rules  and  regulations  as  may  from  time  to  time  be  adopted 
by  the  Board,  either  in  relation  to  the  continuity  of  its  own  busi- 
ness, or  to  the  Federal  reserve  system,  shall  be  appended  to  and 
form  a part  of  these  by-laws. 

FEDERAL  ADVISORY  COUNCIL. 

Section  12  of  the  Federal  Reserve  Act  provides  for  a Federal 
advisory  council  to  consist  of  as  many  members  as  there  are  Federal 
Reserve  districts.  It  is  required  that  each  Federal  Reserve  bank 
shall  by  its  Board  of  Directors  annually  select  one  member  of  the 
council,  and  that  the  said  council  shall  meet  at  Washington  at 
least  four  times  a year,  as  well  as  oftener  if  called  by  the  Reserve 
Board.  The  council  is  given  power  to  select  its  own  officers  and 
adopt  its  own  methods  of  procedure,  and  it  is  further  given  au- 
thority: 

“By  itself  or  through  its  officers  (1)  to  confer  directly 
with  the  Federal  Reserve  Board  on  general  business  condi- 
tions; (2)  to  make  oral  or  written  representations  concern- 
ing matters  within  the  jurisdiction  of  said  Board.  . . . ” 

A review  of  the  provisions  of  Section  12  as  thus  set  forth 
shows  that  the  power  of  the  Organization  Committee  and  of  the 
Federal  Reserve  Board  in  regard  to  the  organization  of  the  Advisory 
Council  is  only  of  a very  broad  general  kind  probably  extending  no 
further  than  the  mere  making  of  suggestions.  It  is,  however, 
recommended  that  the  organization  committee  shall  in  organizing 
Federal  Reserve  banks  make  some  general  recommendations  to  the 
said  banks  with  reference  to  their  participation  in  the  task  of 


9S 


creating  this  council.  The  following  points  are  considered  to  he 
desirable  in  the  organization  of  the  council: 

1.  Appointment  of  members  of  the  council  who  shall  at  least 
at  the  beginning  be  active  operating  officers,  preferably  the  presi- 
dents of  the  several  Federal  reserve  banks. 

2.  Establishment  of  general  headquarters  in  Washington  with 
suitable  representative  in  charge  as  agent,  through  whom  requests 
and  suggestions  may  be  transmitted  to  the  Federal  Reserve  Board 
and  who  shall  transmit  information  to  the  Federal  Reserve  banks 
at  his  discretion  or  as  may  be  asked  by  them. 

3.  Provision  of  reasonable  allowances  for  this  resident  agent 
or  officer  of  the  Advisory  Council.  This  point  is  specifically  made 
subject  to  the  approval  of  the  Federal  Reserve  Board  in  the  early 
part  of  Section  12,  and  undoubtedly  the  recommendations  made  by 
the  Board  at  the  beginning  will  be  largely  influential  in  determining 
the  practice  of  the  several  reserve  banks.  The  provision  of  a suit- 
able mechanism  at  the  outset  will  do  a good  deal  toward  starting 
the  system  upon  right  lines  in  the  beginning,  and  it  is  believed  that 
the  general  suggestions  or  recommendations  already  indicated  ought 
to  be  applied. 

Consideration  should  be  given  to  the  incorporation  in  the  By- 
Laws  of  the  Council  of  the  following  points: 

(1)  Designation  of  Offices  and  Election  of  Officers; 

(2)  Powers  and  Duties  of  Officers; 

(3)  Stated  Quarterly  Conference  at  Washington  between 

Federal  Reserve  Board  and  Federal  Advisory  Council ; 

(4)  Audit  of  Expenses  and  Plan  for  Semi-annual  Budget. 

Referring  more  specifically  to  the  intent  of  the  act  in  providing 

for  conferences  with  the  members  of  the  Federal  Reserve  Board 
regarding  all  matters  relative  to  the  Federal  Reserve  system,  it 
would  sseem  that  the  best  results  would  obtain  if  the  active 
executive  officers  of  the  banks  of  the  system  participated. 
The  provision  that  the  Federal  Advisory  Council  “shall  have 
power,  by  itself  or  through  its  officers,”  implies  the  ne- 
cessity of  continuity  of  action  at  Washington  in  the 

performance  of  its  duties.  The  executive  officers  of  the 

Federal  Reserve  banks  manifestly  would  not  be  available  as 

officers  of  the  Council.  It  is  therefore  suggested  that  it  be  deemed 
appropriate  for  the  Council  to  choose  a paid  officer  or  officers,  who 
shall  reside  in  Washington  and  maintain  an  office  in  the  general 
interests  of  the  Federal  Reserve  banks.  They  should,  of  course,  co- 
operate with  the  Federal  Reserve  Board  in  the  general  interests  of 
the  Federal  Reserve  system. 

If  the  paid  officers  of  the  Federal  Reserve  banks  are  chosen  as 
members  of  the  Federal  Advisory  Council,  as  herein  suggested, 
there  would  be  no  need  for  their  further  compensation,  other  than 
travelling  expenses  and  maintenance  charges  during  the  period  of 
their  meetings. 

The  compensation  of  the  officers  of  the  Federal  Advisory  Council, 
the  office  rent  (unless  otherwise  provided  by  the  Secretary  of  the 


99 


Treasury),  the  maintenance  of  the  clerical  force,  and  other  expenses, 
should  be  assessed  upon  the  various  Federal  Reserve  Banks  in  the 
same  manner  as  is  provided  in  the  act  for  the  payment  of  ex- 
penses of  the  Federal  Reserve  Board. 

CODE  BOOK. 

The  Federal  reserve  banks  should  be  provided  with  a private 
code  for  use  in  the  cable  and  telegraphic  transmission  of  advices 
relative  to  their  business.  Such  codes  are  in  use  in  the  more  im- 
portant existing  banks,  each  such  bank  developing  its  own  code, 
adapted  to  its  own  uses  and  employed  for  the  purpose  of  trans- 
mission of  cipher  messages.  It  is  recommended  that  such  a code 
be  developed  for  the  joint  use  of  the  Federal  reserve  banks  and  of 
the  Federal  reserve  board  and  that  this  be  done  at  an  early  date, 
the  work  being  placed  in  the  hands  of  one  of  the  recognized  code 
experts  who  are  familiar  with  existing  methods  of  doing  this  work 
and  who  are  trustworthy.  In  the  system  of  clearing  and  trans- 
ferring credits  which  has  been  worked  out  in  the  present  report, 
there  is  a large  field  for  the  constant  use  of  telegraphic  advices; 
and  the  Federal  reserve  board  will  find  that  such  advices  will  be 
largely  relied  upon  in  its  own  communications  with  the  reserve 
banks.  That  such  communication  will  in  many  instances  be  of  a 
necessarily  confidential  nature  is  obvious  and  provision  for  a suit- 
able means  of  guarding  the  messages  during  transmission,  while 
reducing  their  length  to  a minimum  should  be  promptly  made. 

ACCOUNTING  SYSTEM. 

Reference  has  already  been  briefly  made  to  the  question  of 
accounting.  It  is  now  necessary  to  consider  that  topic  in  detail. 

In  dealing  with  accounting  it  has  been  found  that  there  would 
be  a necessary  difficulty  in  determining  the  precise  form  to  be 
given  to  the  books  and  records  of  the  Federal  reserve  banks  in 
the  absence  of  positive  knowledge  as  to  the  policy  to  be  finally 
adopted  with  reference  to  their  clearing,  exchange,  and  other 
functions.  If  the  banks  are  to  be  confined  to  comparatively 
limited  operations  at  the  outset  the  form  of  records  then  to  be 
employed  would  naturally  take  a certain  shape;  if  the  banks  are 
to  be  given  a broad  scope  either  at  the  beginning  or  shortly 
thereafter,  with  large  clearing  functions,  the  extent  of  their  op- 
erations, and  the  speed  with  which  their  daily  transactions  would 
require  to  be  recorded  would  call  for  a different  method  of  treat- 
ment. Differences  of  opinion  naturally  prevail  among  accounting 
authorities  with  respect  to  various  details  in  the  recording  of 
bank  transactions,  and  some  of  these  details  are  of  a nature 
which  unavoidably  alters  in  a material  degree  the  framing  of  the 
accounting  system.  Again  there  is  difference  of  view  with  re- 
spect to  the  extent  to  which  the  transactions  could  be  recorded 
by  hand  with  pen  and  ink  and  the  extent  to  which  machines 
could  and  should  be  employed. 

It  has  therefore  been  deemed  wise  to  present  two  distinct 

100 


sets  of  forms  for  the  use  of  the  Federal  reserve  banks.  Of 
these,  the  first  has  been  prepared  under  the  immediate  direc- 
tion of  the  firm  of  Marwick,  Mitchell,  Peat  & Co.,  Chartered  and 
Certified  Accountants,  of  New  York  City,  and  is  herewith  pre- 
sented as  Appendix  I;  the  second — a system  of  mechanical  ac- 
counting— has  been  prepared  under  the  direction  of  Messrs. 
Harry  E.  Ward,  Cashier  of  the  Irving  National  Bank  of  New 
York  City,  and  C.  C.  Robinson,  Auditor  of  the  Irving  National 
Bank,  and  is  herewith  presented  as  Appendix  II.  Very  sincere 
expressions  of  appreciation  are  offered  with  respect  to  the  work 
of  Messrs.  Ward  and  Robinson,  who  in  response  to  the  invitation 
of  the  committee  have  designed  this  system  of  mechanical  account- 
ing, and  have  been  animated  solely  by  a high  sense  of  public  ser- 
vice in  so  doing. 

Close  study  and  cooperation  in  the  preparation  of  the  account- 
ing systems  have,  of  course,  been  given  throughout  by  the  mem- 
bers of  this  committee.  At  the  outset  a sub-committee  on  account- 
ing consisting  of  Messrs.  Benton,  Wolfe,  and  Dawson  and  another 
on  mechanical  accounting  consisting  of  Messrs.  Farnham,  Fisher 
and  Willis  were  named. 


DATE  OF  INSTALLATION. 


It  is  earnestly  recommended: 

1.  That  all  Federal  Reserve  Banks  be  simultaneously  opened 
and  that  they  be  throughout  operated  upon  a uniform  basis. 

2.  That  the  Federal  Reserve  Banks  be  opened  with  their  func- 
tions as  nearly  complete  and  fully  developed  as  may  be,  and  that 
they  shall  not  be  opened  until  the  main  features  of  their  methods 
can  be  prescribed. 

3.  That  before  they  begin  business  there  shall  be  called  in 
Washington  a general  council  of  operating  officers,  that  all  may 
be  consulted  in  connection  with  the  prescribed  technique. 


Respectfully  submitted. 

H.  Parker  Willis,  Chairman. 
Edmund  D.  Fisher, 

Andrew  A.  Benton, 

Joseph  A.  Broderick, 

O.  Howard  Wolfe, 

Ralph  Dawson, 

Stephen  H.  Farnham, 


Preliminary 
Committee  on 
Organization 


101 


APPENDIX  I. 

(Accompanied  by  Portfolio  of  Forms  No.  I.) 

In  furtherance  of  the  plan  to  develop  a complete  scheme  for 
the  organization  of  the  Federal  reserve  banks,  the  committee  de- 
termined to  present  methods  whereby  every  element  in  its  system 
could  be  suitably  recorded  in  a proper  accounting  plan.  To  this 
end  the  aid  of  the  firm  of  Marwick,  Mitchell,  Peat  & Co.,  chartered 
and  certified  accountants,  of  New.  York  city,  was  obtained,  and 
Mr.  Andrew  A.  Benton  of  that  firm  was  invited  to  become  a mem- 
ber of  the  committee.  Mr.  Benton,  with  the  cooperation  of  the 
staff  of  the  firm  referred  to,  and  in  conjunction  with  a sub-com- 
mittee including  Messrs.  Wolfe,  Broderick,  and  Dawson,  planned  an 
accounting  system  designed  to  afford  the  basis  for  the  records  of 
the  work  of  the  Federal  reserve  banks. 

The  matter  prepared  as  above  indicated  is  presented  in  the  form 
of  a report  from  Messrs.  Marwick,  Mitchell,  Peat  & Co.,  and  is 
as  follows: 

The  Preliminary  Committee  on  Organization, 

New  York  City: 

Gentlemen  : 

In  accordance  with  your  instructions,  we  have  designed  a sys- 
tem of  accounting  suitable  for  the  requirements  of  the  regional 
banks  to  be  organized  under  the  Federal  Reserve  Act  of  December 
23,  1913. 

We  herewith  submit  a report  descriptive  of  the  proposed  sys- 
tem, accompanied  by  copies  of  the  forms  necessary  for  its  operation. 

INTRODUCTION. 

Our  constant  endeavor  in  devising  the  system  of  accounting  for 
the  Regional  Banks  has  been  to  combine  simplicity  and  directness 
of  records  and  procedure  with  that  comprehensiveness  of  control 
so  essential  in  bank  accounting.  In  the  development  of  the  system, 
therefore,  every  effort  has  been  made  to  simplify  and  abridge  the 
clerical  routine  by  the  use  of  manifold  forms  where  initial  entries 
could  be  utilized  for  a number  of  purposes;  to  organize  the  de- 
partments and  procedure  so  that  needless  duplication  of  work  and 
records  would  be  avoided;  and  finally,  by  the  introduction  of  special 
Departmental  Settlement  forms  which  would  serve  both  for  the 
departmental  proof  and  the  Auditor’s  control,  to  centralize  in  the 
Audit  Division  complete  control  over  the  daily  operations. 

A few  typical  examples  will  serve  to  illustrate  the  extent  to 
which  reentry  of  transactions  has  been  avoided  by  the  use  of  mani- 
fold forms.  In  the  Loan  Department  there  will  be  prepared  at  one 
writing  the  Loan  Register  entry  and  the  Liability  Ledger  Voucher 
from  which  the  debit  entries  in  the  Liability  Ledgers  will  be  check- 
ed and  the  credit  entries  posted  upon  maturity  of  the  loan.  The 
form  devised  for  use  in  connection  with  transfers  to  banks  in 
other  districts  will  permit  of  the  preparation  at  one  writing  of  the 


102 


credit  or  charge  to  the  Regional  Bank,  the  office  record,  and  the 
advice  to  be  sent  to  the  Member  Bank  affected.  The  Member 
Banks’  form  for  returning'  items  unpaid  provides  for  the  prepara- 
tion at  one  writing'  of  the  letter  of  enclosure  to  the  Member  Bank 
to  which  the  item  is  returned,  authorization  to  recipient  to  credit 
its  Regional  Bank;  advice  to  the  Regional  Bank  of  the  charge  to 
its  account  for  the  item;  authorization  of  the  transfer  of  such 
charge  to  the  Regional  Bank  in  whose  district  the  item  originated, 
and  finally,  the  Member  Bank’s  record  of  the  return  of  the  item 
and  of  its  charge  to  the  Regional  Bank  from  which  received.  In 
the  Bookkeeping  Department  there  will  be  prepared  at  one  writing 
the  Regional  Bank's  Ledger  record  of  its  transactions  with  the 
Member  Banks  and  the  statements  of  account  and  advices  to  be  sent 
the  Member  Banks.  While  special  attention  has  been  given  to  ar- 
ranging these  and  all  other  forms  accompanying  this  report  so 
that  they  can  be  used  with  any  of  the  standard  adding  and  type- 
writing machines  now  on  the  market,  no  radical  changes  in  the 
accounting  system  should  be  necessary  were  special  machines 
utilized. 

In  the  planning  of  the  departments,  the  aim  has  been  to  restrict 
them  to  the  smallest  number  required  for  the  expeditious  and  cor- 
rect handling  of  the  work,  to  group  the  departments  and  operations 
so  that  conflict  of  duties  and  consequent  duplication  of  work  would 
be  avoided,  and  finally,  by  compelling  departments  handling  funds 
to  account  to  another  department  for  such  funds,  to  have  the  de- 
partments themselves  automatically  check  each  other’s  work.  The 
extent  to  which  duplication  of  work  and  records  has  been  over- 
come by  planning  the  procedure  so  that  the  items  will  go  direct 
from  the  department  in  which  they  originate  to  the  final  recording 
department,  is  illustrated  by  the  following: 

Upon  receipt,  checks  drawn  by  Member  Banks  on  their  Regional 
Banks  will  be  sorted  and  listed  on  proof  sheets,  the  number  of  the 
Member  Bank  inserted,  and  both  the  proof  sheets  and  the  checks 
forwarded  to  the  Bookkeeping  Department.  The  proof  sheets  will  be 
delivered  to  the  Journal  clerks,  who. will  post  the  totals  shown 
thereon  to  the  proper  accounts  in  the  Member  Banks  Journal.  The 
checks  themselves  will  be  utilized  by  the  ledger  clerks  for  prepar- 
ing the  Ledger  record  and  the  Daily  Statement  to  be  sent  to  the 
Member  Banks.  As  the  entries  in  the  Journal  will  be  compiled 
from  the  proof  sheets  and  those  on  the  Ledger  direct  from  the 
items,  and  a daily  comparison  made  of  the  two  sets  of  balances,  it 
is  obvious  that  this  procedure  affords  every  possible  protection 
against  errors — and  moreover  with  only  two  entries  of  the  item. 

The  following  is  a brief  description  of  the  proof  system  by 
means  of  which  the  Audit  Division  will  be  able  to  maintain  com- 
plete control  over  the  work  of  the  various  departments  whose 
transactions  affect  the  figures  in  the  Daily  Statement  of  Condition, 
departmental  Settlement  Sheets  (Form  A-2)  have  been  provided 
on  which  the  various  departments — or  subdivisions  of  de- 
partments, in  the  case  of  the  Clearings  and  Transit  Departments — 


103 


will  be  required  to  balance  their  work  independently  but  along 
uniform  lines.  The  upper  section  of  this  form  is  ruled  for  entry  of 
the  debits  and  credits  of  the  departments  to  the  Member  Banks, 
Government  Deposits,  General,  and  other  accounts,  and  the  lower 
section  for  entry  of  the  inter-departmental  debits  and  credits 
in  respect  of  items  delivered  to  or  received  from  them,  and  such 
other  departmental  transactions  as  may  arise.  Each  department 
receiving  items  from  another  department  being  required  to  enter 
them  on  its  settlement  sheet  to  the  credit  of  the  department  charg- 
ing them,  it  is  apparent  that  for  each  debit  and  credit  in  a certain 
department  there  should  be  a corresponding  credit  or  debit  in 
some  other  department.  At  the  close  of  business  each  day  the 
totals  of  the  Departmental  Settlement  Sheets  are  to  be  assembled 
by  the  Auditor  on  the  General  Proof  Sheet.  This  General  Proof 
Sheet  will  at  once  reveal  any  errors  in  the  work  of  the  different 
departments  and  will  serve  to  centralize  in  the  Audit  Division  com- 
plete control  over  the  daily  operations  of  the  bank  by  furnishing 
the  means  for  tracing  and  verifying  all  inter-departmental  entries. 
Furthermore,  this  control  will  be  obtained  without  unnecessary  re- 
listing, for  the  items  will  go  direct  from  the  various  Tellers’  Depart- 
ments to  the  Bookkeeping  Department. 

EXECUTIVE  AND  CLERICAL  ORGANIZATION. 

On  Exhibit  “A”  accompanying  this  report,  we  show  in  graphic 
form  the  executive  and  clerical  organization  and  the  proposed  dis- 
tribution of  duties.  It  will  be  seen  by  reference  to  this  Exhibit 
that  the  clerical  organization  consists  of  a Banking  Division,  -which 
will  include  the  Loan  and  Investment  Securities,  Tellers,  Transit, 
Foreign  Exchange,  and  Bookkeeping  Departments;  an  Audit  Divi- 
sion which  will  be  responsible  for  the  verification  of  the  depart- 
mental proofs,  records  and  securities;  and  a Credit  Division  to 
which  will  be  entrusted  all  matters  relative  to  the  securing  and 
compiling  of  data  in  regard  to  loans,  investments,  etc. 

CHIEF  CLERIC. 

The  Chief  Clerk  will  be  the  intermediary  between  the  officers 
and  the  clerks  engaged  in  the  Banking  Division.  All  instructions 
of  the  officers  affecting  the  clerks  in  this  Division  are  to  be  issued 
through  the  Chief  Clerk,  who  should  be  held  responsible  for  the 
fulfilment  of  such  instructions,  and  also  for  the  prompt  and  effi- 
cient conduct  of  the  routine  work  of  the  Division  and  for  the  gen- 
eral discipline  of  the  clerks  under  his  jurisdiction. 

Subject  to  the  approval  of  the  officer  in  charge,  the  Chief  Clerk 
should  arrange  for  the  filling  of  temporary  vacancies  occasioned 
by  illness,  vacations,  etc.,  and  for  the  purchase  of  stationery  and 
supplies. 

LOAN  AND  INVESTMENT  SECURITIES  DEPARTMENTS. 

The  Loan  and  Investment  Securities  Departments  will  comprise 
the  Rediscounts  Department,  the  Open  Market  Purchases  Depart- 


104 


ment,  and  the  Investment  Securities  Department.  Explanatory  of 
the  functions  of  these  Departments  and  the  records  to  be  main- 
tained therein,  we  submit  the  following: 

Rediscounts  and  Open  Market  Purchases  department. 

The  Rediscounts  and  Open  Market  Purchases  Departments  will 
be  responsible  for  the  proper  handling  and  custody  of  the  notes  re- 
discounted for  Member  Banks  and  the  paper  purchased  in  the  open 
market,  and  also  for  the  maintenance  of  the  books  and  forms  re- 
quired for  recording  the  transactions  and  collecting  such  of  the 
loans  as  are  payable  out-of-town.  Briefly,  the  duties  of  these  de- 
partments will  include  the  examination,  as  to  their  regularity,  of 
the  notes,  drafts,  etc.,  received:  the  calculation  of  the  interest,  dis- 
count, and  maturities;  the  entering  of  the  paper  in  the  Discount 
Registers,  Maturity  Records,  and  Liability  Ledgers;  the  filing  of 
the  paper  pending  collection,  which  is  to  be  effected  through  Mem- 
ber Banks  in  the  event  of  the  paper  being  payable  out-of-town, 
or  through  the  Note  Teller’s  Department  if  payable  in  the  city  in 
which  the  Regional  Bank  is  situated;  and  the  posting  of  the 
credits  for  payments  in  the  Liability  Ledgers. 

The  forms  to  be  used  in  the  Rediscounts  and  Open  Market 
Purchases  Departments  being  either  similar  or  common  to  both,  the 
two  departments  will  be  dealt  with  as  a unit  in  the  ensuing  de- 
scription of  the  forms  required. 

Authority  to  Rediscount  (B-l).  This  form  when  executed  will 
be  a certificate  reciting  that  the  Board  of  Directors  of  the  Member 
Bank  has  authorized  certain  of  the  officers  to  rediscount  with,  sell 
to,  or  borrow  from  their  Regional  Bank.  A copy  of  this  form  is 
to  be  executed  by  each  Member  Bank. 

Application  for  Loam  (B-2).  An  application  is  to  be  executed 
on  this  form  by  the  Member  Bank  and  submitted  to  the  Regional 
Bank  with  each  schedule  of  notes,  drafts,  and  bills  of  exchange 
offered  for  rediscount. 

Schedule  of  Notes,  Drafts,  and  Bills  of  Exchange  offered  for 
Rediscount  (B-3).  This  form,  after  completion  by  the  Member 
Bank,  is  to  be  forwarded  to  the  Regional  Bank  together  with  the 
Application  for  Loan,  Form  B-2. 

In  order  that  the  Regional  Bank  may  have  sufficient  details 
of  the  paper  offered  for  rediscount,  provision  has  been  made  for 
Inclusion  in  this  schedule  of  the  number,  name,  and  location  of  the 
offering  bank;  the  name,  address,  and  business  of  the  maker  or 
drawer;  the  acceptor,  endorser,  or  collateral;  where  payable;  date 
of  note;  due  date;  discount  rate,  and  face  amount  of  note. 

Register  of  Rediscounts  (B-4) ; Register  of  Open  Market  Pur- 
chases (B-5).  As  the  notes,  drafts,  or  bills  are  received  from  the 
Member  Banks  for  rediscount,  or  purchased  in  the  open  market, 
they  are  to  be  entered  directly  from  the  notes  in  the  respective  Reg- 
isters. These  Registers  are  arranged  so  as  to  show  for  each  item, 
the  consecutive  index  number;  the  date  rediscounted  or  purchased; 
date  of  note;  due  date;  time;  rate  of  discount;  amount  of  note; 

105 


discount;  proceeds;  for  whom  rediscounted  or  from  whom  pur- 
chased; the  maker  or  drawer;  the  acceptor,  endorser,  or  collateral, 
and  where  payable.  The  “a”  sections  of  these  forms  will  be  clas- 
sified as  to  City  and  Country  items,  and  thereafter  filed  in  chrono- 
logical order  according  to  due  dates,  while  the  “b”  sections  will  be 
placed  in  binders  and  will  constitute  the  Discount  Registers  proper. 

Credit  tickets  for  the  proceeds  of  the  notes,  etc.,  rediscounted 
or  purchased  in  the  open  market  will  "be  prepared  at  intervals 
during  the  day  and  forwarded  to  the  Bookkeeping  Department. 

At  the  close  of  business,  tickets  covering  the  day’s  totals  of  the 
rediscounts  and  open  market  purchases,  and  the  discount  received 
on  each  class  of  paper,  as  shown  by  the  respective  Registers,  are 
to  be  prepared  and  forwarded  to  the  Bookkeeping  Department. 

City  Maturity  Record  (B-6) ; Country  Maturity  Record  ( B-l) . 
After  the  notes,  drafts,  etc.,  have  been  recorded  in  the  Discount 
Registers,  they  are  to  be  classified  as  to  “City”  and  “Country”  items 
and  entered  in  the  proper  Maturity  Record  under  the  respective 
due  dates.  As  the  tickets  prepared  at  the  time  the  entries  are 
made  in  the  Discount  Registers  will  be  filed  in  chronological  order 
according  to  due  dates  and  will  be  available  for  reference,  it  will 
be  necessary  to  enter  in  the  City  Maturity  Record  only  the  index 
number  and  the  amount  of  the  note,  and  in  the  Country  Maturity 
Record  only  the  index  number,  the  amount  of  the  note,  and  where 
payable.  For  such  of  the  items  as  are  sent  to  Member  Banks  for 
collection,  the  date  on  which  the  receipt  of  the  item  is  ac- 
knowledged by  the  collecting  bank  is  to  be  subsequently  added 
from  Form  B-l  3. 

At  the  close  of  business  each  day,  tickets  for  the  totals  of  the 
respective  maturities  are  to  be  prepared  and  forwarded  to  the 
general  bookkeeper  for  credit  to  the  controlling  accounts. 

The  Maturity  Records  are  to  be  footed  weekly,  and  from  the 
footings  so  obtained  will  be  compiled  the  totals  for  the  30-day,  60- 
day,  and  90-day  paper  rediscounted  or  purchased  by  the  Regional 
Bank. 

Notes  or  other  items  rediscounted  for  Member  Banks  and  not 
paid  at  maturity  are  to  be  charged  to  the  account  of  the  Member 
Bank  for  which  rediscounted,  and  returned.  Paper  bought  in  the 
open  market  not  paid  at  maturity  is  to  be  charged  to  an  account 
entitled  “Past  Due  Paper,”  pending  payment  or  other  disposition. 

Member  Banks’  Liability  Ledger  (B-SJ.  This  form  is  designed 
to  provide  a detailed  record  of  the  contingent  liabilities  of  each 
Member  Bank  to  the  Regional  Bank. 

A separate  sheet  will  be  opened  for  each  Member  Bank  on  which 
will  be  recorded  in  the  “Rediscounts”  section,  the  date  on  which  the 
item  was  rediscounted;  its  index  number;  the  maker  or  drawer;  the 
acceptor  or  endorser;  the  due  date;  the  discount  rate,  and  the  re- 
discount amount.  When  paid,  the  date  and  amount  of  the  pay- 
ment will  be  entered  in  the  “Credits”  columns  and  the  amount  in 
the  “Balance”  column  reduced  accordingly.  In  the  section  desig- 
nated “Other  Liability”  will  be  entered  the  details  of  the  contingent 


106 


liability  of  the  Member  Banks  as  acceptors  or  endorsers  on  paper 
purchased  in  the  open  market. 

The  debit  entries  are  to  be  posted  direct  from  the  notes  and 
proved  by  comparison  with  the  tickets  prepared  at  the  time  the 
entries  are  made  in  the  Discount  Registers. 

Liability  Ledger — Rediscounts  and  Open  Market  Purchases 
(B-9).  In  this  record  will  be  entered  under  the  names  of  the 
makers  or  acceptors,  their  liability  to  the  Regional  Bank  in  respect 
of  notes  rediscounted  by  member  banks  and  paper  purchased  in 
the  open  market. 

In  addition  to  the  name,  address,  business,  and  rating  of  the 
borrower,  there  will  be  entered  in  this  Ledger  the  date  on  which 
the  note,  draft,  etc.,  was  rediscounted  or  purchased;  the  index  num- 
ber; from  whom  received;  the  endorsers;  the  due  date,  and  the 
amount  of  the  liability,  subdivided  as  to  rediscounts  and  open 
market  purchases.  When  paid,  the  date  and  amount  of  the  pay- 
ment will  be  entered  in  the  “Credits”  columns  and  the  amount  in 
the  “Balance”  column  reduced  accordingly. 

Should  the  notes,  drafts,  etc.,  be  later  hypothecated  with  the 
Federal  Reserve  Agent,  this  information  is  to  be  entered  in  the 
"Deposited"  column  on  the  line  containing  the  description  of  the 
paper.  When  returned  by  the  Federal  Reserve  Agent,  the  date  is 
to  be  entered  in  the  “Withdrawn”  column  and  the  amount  in  the 
"Balance”  column  reduced  accordingly.  This  balance  can  be  very 
readily  proved  by  listing  the  open  items. 

From  the  foregoing  it  will  be  seen  that  this  Ledger  will  show 
both  the  extent  of  the  borrowers’  liability  and  the  location  of  the 
paper — that  is,  whether  it  is  in  the  possession  of  the  Regional  Bank 
or  whether  it  is  held  by  the  Federal  Reserve  Agent  as  collateral. 

In  the  event  of  paper  being  sold  by  the  Regional  Bank  prior 
to  maturity,  the  date  and  amount  would  be  posted  in  the  "Credits” 
column  and  the  name  of  the  pui'chaser  recorded  in  the  “Sold  to” 
column. 

The  debit  entries  are  to  be  posted  direct  from  the  notes  and 
proved  by  comparison  with  the  tickets  prepared  at  the  time  the 
entries  are  made  in  the  Discount  Registers. 

Contingent  Liability  Record — Rediscounts  and  Open  Market 
Purchases  (B-10).  Separate  sheets  of  this  form  are  to  be  used 
for  each  endorser  on  paper  rediscounted  or  purchased  in  the  open 
market.  The  form  will  be  headed  with  the  name  of  the  endorser, 
his  address,  business,  and  financial  rating,  and  will  show  for  each 
item  the  date  on  which  it  was  rediscounted  or  purchased;  the  index 
number;  the  maker  or  acceptor;  the  liability  amount;  the  credits 
for  payments,  and  the  balance — representing  the  net  contingent 
liability. 

The  debit  entries  are  to  be  posted  direct  from  the  notes  and 
proved  by  comparison  with  the  tickets  prepared  at  the  time  the 
entries  are  made  in  the  Discount  Registers. 

Weekly  Report  of  Borrower’s  Liability  (B-ll).  It  is  through 
the  medium  of  this  form,  wdhch  is  to  be  prepared  weekly  by  the 


107 


Regional  Banks  from  the  Liability  Ledgers,  that  the  Federal  Re- 
serve Board  will  obtain  the  data  it  requires  as  to  the  extent  and 
nature  of  the  liabilities  of  the  customers  of  the  Member  Banks  to 
the  Regional  Banks  and  the  amount  of  the  paper  hypothecated 
by  the  Regional  Banks  with  the  Federal  Reserve  Agent.  Two 
copies  are  to  be  made,  one  of  which  is  to  be  forwarded  to  the 
Board  and  the  other  retained  by  the  Regional  Bank.  So  as  to 
minimize  the  amount  of  work  involved  in  the  preparation  of  this 
report,  it  is  suggested  that  lines  of  less  than  say  $10,000.00  be  ex- 
cluded. 

Being  designed  on  the  unit  plan,  it  will  only  be  necessary  for 
the  Federal  Reserve  Board  to  assemble  in  alphabetical  order,  ac- 
cording to  makers  or  acceptors,  the  reports  received  from  the 
various  Regional  Banks  in  order  to  ascertain  the  aggregate  lia- 
bility of  each  individual  borrower  for  notes  rediscounted  or  pur- 
chased by  the  Regional  Banks. 

Weekly  Report  of  Member  Banks’  Credit  Balances  and  Re- 
discounts (B-12).  This  form  is  somewhat  similar  to  Form  B-ll, 
except  that  it  is  intended  to  show,  for  each  Member  Bank,  its 
average  credit  balance  with  the  Regional  Bank,  the  amount  of 
notes  rediscounted  by  it  with  the  Regional  Bank,  and  the  con- 
tingent liability  of  the  Member  Bank  in  respect  of  acceptances 
or  endorsements  on  paper  purchased  by  the  Regional  Bank  in  the 
open  market. 

The  data  required  for  the  completion  of  this  form  will  be 
obtained  from  the  Member  Banks’  Liability  Ledger,  Form  B-8, 
and  from  the  Member  Banks’  Ledger,  Form  “G-4a.” 

Collection  Form  for  Notes  Owned  Payable  in  Discounting  Bank’s 
District  (B-13).  The  several  copies  of  this  form  wrill  serve  re- 
spectively as  a letter  of  enclosure,  receiving  bank’s  acknowledg- 
ment, charge  ticket,  and  office  record,  of  notes  owned  which  are 
sent  to  a Member  Bank  for  collection.  It  is  to  be  prepared  in 
quadruplicate,  and  the  following  disposition  made  of  the  various 
copies: 

Original — To  be  sent  to  collecting  bank  with  item,  as  a letter  of 
enclosure. 

Duplicate — To  be  sent  with  item  to  collecting  bank,  by  which  it 
will  be  signed  and  returned  to  Regional  Bank. 
Upon  receipt  by  Regional  Bank,  the  date  of 
acknowledgment  is  to  be  entered  on  the  Country 
Maturity  Record,  Form  B-7,  and  duplicate  filed 
in  correspondence  file. 

Triplicate — To  be  filed  by  Regional  Bank  in  Note  File  until  ma- 
turity, then  turned  over  to  the  Note  Teller’s  De- 
partment. Thereafter  the  collecting  bank  will 
be  charged  with  the  amount  of  the  item  and 
triplicate  sent  forward  as  an  advice  of  such 
charge. 

Quadruplicate — To  be  retained  by  the  Regional  Bank  in  numeri- 
cal order  as  a permanent  record. 


108 


Collection  Form  for  Notes  Owned  Payable  in  Other  Districts 
(B-liJ.  This  form  is  to  be  used  in  forwarding  to  other  Regional 
Banks,  notes  owned  which  are  payable  outside  the  district  of  the 
forwarding  Regional  Bank;  it  consists  of  an  original  to  be  sent 
to  the  collecting  Regional  Bank  with  the  items  and  a duplicate  to 
be  retained  by  the  forwarding  bank. 

On  the  due  date  of  the  items,  the  duplicate,  or  debit  sheet,  is 
to  be  turned  over  to  the  Note  Teller’s  Department  and  used  as  a 
charge  against  the  collecting  Regional  Bank. 

Record  of  Notes  Hypothecated  with  Federal  Reserve  Agent 
(B-15J.  This  form,  which  is  to  be  prepared  in  duplicate,  and  is 
to  accompany  each  lot  of  notes  turned  over  to  the  Federal  Reserve 
Agent  as  collateral  for  Federal  Reserve  Notes  issued,  provides  for 
the  recording  of  the  serial  numbers  given  the  notes  by  the  Federal 
Reserve  Agent  and  by  the  Regional  Bank,  and  the  amounts  of  the 
notes  hypothecated. 

Upon  delivery  of  the  notes,  the  original  of  this  form  is  to  be 
signed  by  a representative  of  the  Federal  Reserve  Agent  as  an 
acknowledgment  of  the  receipt  of  the  notes,  and  then  returned  to 
the  Regional  Bank.  The  duplicate  is  to  be  retained  by  the  Fed- 
eral Reserve  Agent  as  his  record  of  the  transaction. 

When  the  notes  are  returned  to  the  Regional  Bank  by  the 
Federal  Reserve  Agent,  the  date  on  which  they  are  so  returned 
is  to  be  inserted  on  both  copies;  consequently  both  the  Federal 
Reserve  Agent  and  the  Regional  Bank  will  be  in  possession  of  a 
complete  record  of  the  notes  pledged  as  collateral  with  the  Agent 
and  the  disposition  made  of  the  notes. 

Record  of  Collateral  Withdrawn  from  Federal  Reserve  Agent 
(B-16J.  Aside  from  the  fact  that  it  is  to  be  used  in  withdrawing 
notes  deposited  as  collateral,  this  form  is  somewhat  similar  to 
Form  B-15.  In  the  case  of  Form  B-16,  however,  the  original  is 
to  be  retained  by  the  Regional  Bank,  while  the  duplicate  is  to  be 
signed  by  the  Regional  Bank  as  an  acknowledgment  of  the  receipt 
of  the  notes,  and  thereafter  returned  to  the  Federal  Reserve  Agent. 

Collateral  Card  (B-17).  The  particulars  to  be  recorded  on  this 
form  will  include  the  name  and  address  of  the  borrower;  the  serial 
number,  amount,  date,  and  other  details  of  the  loan;  and  the  quan- 
tity, description,  and  market  value  of  the  collateral.  Upon  payment 
of  the  loan  and  surrender  of  the  collateral,  the  borrower  or  his 
representative  is  to  sign  the  collateral  card  in  acknowledgment  of 
the  receipt  of  the  securities  described  thereon. 

Record  of  Securities  Held  as  Collateral  (B-18J.  This  form  will 
be  used  for  classifying  according  to  issues,  the  securities  pledged 
as  collateral.  A sheet  will  be  reserved  for  each  issue  on  which  will 
be  entered  the  name  and  description  of  the  security,  the  date 
pledged  or  surrendered,  the  number  and  name  of  the  loan  upon 
which  pledged,  the  number  of  bonds  or  shares  pledged  or  sur- 
rendered, and  the  total  par  value  of  the  securities  pledged, 
surrendered  and  on  hand. 

Accruals.  To  ensure  the  accuracy  of  the  published  statements 
of  condition  and  facilitate  the  verification  of  the  interest  earned  on 


109 


rediscounts  and  paper  purchased  in  the  open  market,  it  is  essential 
that  the  Regional  Banks  should  nave  an  accrual  system  which  will 
permit  of  the  ascertainment  of  the  actual  earnings  from  this  source 
at  daily  or  weekly  intervals.  By  the  adoption  of  the  following  pro- 
cedure the  amount  of  interest  earned  on  loans  outstanding  could  be 
determined  daily  with  very  little  difficulty. 

At  the  close  of  business  each  day  the  total  of  the  interest  col- 
lected as  shown  by  the  “Discount”  columns  in  the  Register  of  Re- 
discounts, Form  B-4,  and  the  Register  of  Open  Market  Purchases, 
Form  B-5,  should  be  credited  to  the  General  Ledger  account  en- 
titled “Unearned  Interest.”  Simultaneously,  a charge  should  be 
made  to  this  account — the  proper  earnings  account  being  concur- 
rently credited — for  one  day’s  interest  on  the  total  of  the  loans 
outstanding.  To  facilitate  the  computation  of  this  charge,  a col- 
umnar book  containing  debit,  credit  and  balance  columns  for  the 
loans  at  each  interest  rate  should  be  provided,  in  which  should  be 
entered  the  net  increases  or  decreases  in  the  loans  made  or  paid 
each  day  and  the  revised  totals  of  the  loans  outstanding  at  the 
various  interest  rates. 

Twice  a year  the  balance  in  the  Unearned  Interest  Account 
should  be  proved  by  listing  in  a columnar  book,  under  the  respec- 
tive interest  rates,  the  amount  and  unexpired  days  for  each  loan 
outstanding,  and  computing  therefrom  the  total  interest  unearned. 

Investment  Securities  Department. 

To  this  department  will  be  assigned  the  custody  of  the  bonds 
and  other  securities  in  which  the  Regional  Bank  has  invested  and 
all  matters  relating  to  the  recording  of  the  purchases,  sales,  and 
maturities  of  such  securities,  the  receiving  of  securities  purchased, 
and  the  delivery  or  redemption  of  securities  sold  or  matured. 

Investment  Register  (B-19).  Separate  sheets  of  this  register  are 
to  be  used  for  each  issue  of  securities  acquired.  These  sheets  will 
be  headed  with  the  name  and  description  of  the  security,  the  date 
of  maturity,  the  rate  of  interest,  and  where  such  interest  is  payable. 
For  the  recording  of  the  individual  transactions,  columns  are  pro- 
vided in  which  will  he  entered  the  date  purchased  or  sold,  the 
basis  and  percentage  prices;  the  number,  par  value  and  cost  of  the 
bonds,  notes,  etc.,  purchased;  the  number,  par  value,  and  selling 
price  or  redemption  value  of  the  securities  sold  or  redeemed,  the 
falance  on  hand,  and  the  profit  or  loss  on  sales.  Ihe  reverse  of 
this  form  is  to  be  utilized  for  recording  the  serial  numbers  of  the 
securities  purchased,  sold,  and  redeemed. 

TELLERS'  DEPARTMENTS. 

The  following  is  a list  of  the  Tellers’  Departments: 

Paying  Teller’s  Department. 

Receiving  Teller’s  Department. 

Note  Teller’s  Department. 

Transfer  Department. 

Clearings  Department. 

Collection  Department. 


110 


The  activities  of  these  departments  will  be  confined  almost  en- 
tirely to  the  receiving-  and  disbursing'  of  cash  and  the  collection  or 
transmittal  of  items  turned  over  to  them.  They  will,  in  conse- 
quence, require  no  permanent  records  of  importance  except  the 
Proof  and  Settlement  Sheets  on  which  will  be  listed,  in  amounts 
only,  the  items  passing  through  the  departments. 

Paying  Teller’s  Department. 

The  Paying  Teller  will  attend  to  all  payments  made  over  the 
counter,  the  certifying  of  checks,  Clearing  House  settlements,  and 
other  duties  of  a similar  nature.  He  will  also  be  required  to  pass 
on  the  authenticity  of  the  signatures  on  the  drafts,  checks,  etc., 
received  in  his  department. 

It  is  proposed  also  that  the  Paying  Teller  shall  supervise  the 
shipping  of  currency  to  Member  Banks  and  the  forwarding  of 
mutilated  currency  for  redemption.  Should  the  shipments  of  cur- 
rency to  Member  Banks  prove  to  be  very  numerous,  however,  a 
special  department  might  be  created  to  take  charge  of  such  ship- 
ments. 

The  Paying  Teller  should  be  responsible  only  for  the  counter 
cash,  as  it  is  suggested  that  the  reserve  cash  be  placed  under  the 
joint  control  of  two  officers. 

Stop  Payment  Notice  fC-1).  This  form  will  be  used  by  the  Pay- 
ing Teller  in  acknowledging  receipt  of  a Member  Bank's  request  to 
stop  payment  of  a draft  drawn  by  it  on  the  Regional  Bank  and  in 
advising-  the  Bookkeeping  Department  of  such  stop  payment.  The 
three  copies  to  be  prepared  will  be  utilized  as  follows: 

Original  — To  be  sent  to  Member  Bank  at  whose  request  pay- 
ment was  stopped  as  an  acknowledgment  of  the  re- 
ceipt of  its  instructions. 

Duplicate — To  be  delivered  to  the  Bookkeeping  Department  and 
held  there  pending  presentation  of  draft.  Should  the 
request  to  stop  payment  be  cancelled  later  on,  the 
duplicate  is  to  be  so  marked  and  then  filed. 

Triplicate — After  receipt  of  duplicate  has  been  acknowledged, 
this  copy  is  to  be  filed  in  the  Paying  Teller’s  De- 
partment. 

Certification  Record  (C-2).  This  form  is  designed  to  provide  a 
suitable  record  of  checks  certified  for  account  of  Member  Banks. 

The  original,  or  Certification  Debit,  is  to  be  sent  to  the  Member 
Bank,  together  with  the  Daily  Statement.  The  duplicate,  which  will 
constitute  the  Regional  Bank’s  record  of  the  transaction,  will  be 
stamped  “Paid”  as  the  originals  are  redeemed.  This  record  could 
be  prepared  in  either  pad  or  book  form. 

At  the  close  of  business  a credit  ticket  for  the  total  of  the 
.day’s  certifications  is  to  be  prepared  and  forwarded  to  the  General 
Bookkeeper.  The  certified  checks  paid  each  day  will  be  listed  on 
Bookkeeping-  Department  Form  G-6,  which  is  intended  to  support 
the  debits  to  the  controlling  account.  The  total  of  the  checks  issued 


111 


but  not  paid  should  equal  the  balance  in  the  General  Ledger  con- 
trolling account  for  certified  checks. 

It  may  be  explained  at  this  point  that  the  certifications  would 
probably  be  few  in  number,  and  in  most  cases  would  be  for  the 
purpose  of  establishing  the  genuineness  of  the  signatures  on  drafts. 

Notice  of  Currency  Shipments  (C-3).  The  original  of  this  form 
will  be  used  both  as  a charge  ticket  and  as  an  advice  to  the  Member 
Bank  that  the  shipment  has  gone  forward;  the  duplicate  will  be 
retained  by  the  Regional  Bank  and  filed  with  the  Member  Bank’s 
requisition  for  the  currency. 

Receiving  Teller’s  Department. 

The  chief  duties  of  the  Receiving  Teller  will  be  to  accept  the 
deposits  made  by  local  Member  Banks  and  to  receive  shipments  of 
currency  forwarded  by  out-of-town  Member  Banks.  He  will,  in 
addition,  maintain  the  Cashier’s  Check  Register,  and  attend  to  such 
other  duties  as  may  be  assigned  him. 

All  cash  on  hand  in  this  department  at  the  close  of  business 
each  day  is  to  be  surrendered  to  the  Paying  Teller. 

Deposit  Ticket  (C-4).  A form  similar  to  this  is  to  be  used  by 
the  Member  Banks  when  depositing  currency  or  coin  in  their 
Regional  Bank. 

Cashier’s  Checks  Register  (C-3).  This  form  is  intended  to  pro- 
vide a detailed  record  of  the  Cashier’s  checks  issued  in  settlement 
of  balances,  notes  and  bills  purchased,  and  other  necessary  trans- 
actions. 

The  checks  are  to  be  recorded  in  the  Register  in  numerical 
order,  the  date,  payee,  and  amount  being  entered,  as  well  as  the 
account  for  which  the  payment  was  made. 

At  the  close  of  business  the  total  of  the  day’s  entries  in  the 
“Amount”  column  is  to  be  extended  in  the  “Daily  Total”  column 
and  the  General  Bookkeeper  supplied  with  a credit  ticket  for  the 
amount  of  the  checks  issued  during  the  day.  The  Cashier’s  checks 
paid  each  day  will  be  listed  on  Bookkeeping  Department  Form  G-7, 
which  will  support  the  debits  to  the  controlling  account. 

When  the  checks  are  paid,  the  date  is  to  be  entered  in  the  last 
column.  The  total  of  the  checks  issued  but  not  paid  as  shown 
by  the  Register  should  equal  the  balance  in  the  General  Ledger 
controlling  account  for  Cashier’s  checks. 

Note  Teller’s  Department. 

This  department  will  be  the  medium  through  which  all  pay- 
ments made  on  account  of  loans,  interest,  etc.,  will  be  received. 
From  the  Loan  and  Collection  Departments  will  be  received  the 
daily  maturities,  and  from  the  other  departments,  returns  and 
other  items  payable  within  the  City.  The  proceeds  of  the  items 
collected  by  this  Department  are  to  be  distributed  and  charged  to 
the  proper  departments,  all  cash  being  turned  over  to  the  Paying 
Teller’s  Department.  The  messengers  will  be  under  the  jurisdic- 
tion of  the  Note  Teller. 


112 


Memoer  Banks’  Form  for  Returning  Items  Unpaid  (C-6).  This 
form  will  be  used  by  the  Member  Banks  in  returning-  unpaid  items 
direct  to  the  Member  Banks  in  which  they  were  deposited  and  in 
charging  back  such  items  to  the  Regional  Bank  from  which  they 
were  received.  The  four  copies  to  be  made  of  this  form  are  to  be 
disposed  of  as  follows: 

Original — To  be  enclosed  with  the  item,  which  is  to  be  returned 
direct  to  the  Member  Bank  in  which  it  was 
deposited. 

Duplicate — To  be  sent  to  the  Regional  Bank  from  which  the 
Member  Bank  received  the  item,  as  advice  that 
item  has  been  returned  direct  and  charged  to 
the  account  of  the  Regional  Bank  to  which 
advice  is  sent.  The  Regional  Bank  will  utilize 
this  ticket  as  a credit  to  the  account  of  the 
Member  Bank  returning  the  item. 

Triplicate — To  accompany  the  duplicate.  If  the  item  originated 
in  another  district,  the  triplicate  will  be  utilized 
by  the  Regional  Bank  to  which  it  is  sent  in 
preparing  Form  C-7,  Statement  of  Returned 
Items. 

Quadruplicate — To  be  retained  by  the  Member  Bank  returning 
the  item  as  authority  for  its  charge  to  the 
account  of  the  Regional  Bank  from  which  the 
item  was  received. 

Regional  Bank’s  Statement  of  Returned  Items  ( C-7) . The  data 
required  to  complete  this  form,  which  is  to  be  used  in  charging 
back  to  other  Regional  Banks  items  returned  to  their  Member 
Banks,  will  be  obtained  from  Form  C-6.  The  original  is  to  be 
sent  to  the  Regional  Bank  from  which  the  items  were  received 
as  an  advice  of  the  charge  to  its  account.  It  will  be  used  by  the 
recipient  as  authority  for  crediting  the  account  of  the  Regional 
Bank  from  which  received,  and  charging-  the  accounts  of  the 
Member  Banks  to  which  the  items  have  been  returned.  The 
duplicate  will  be  retained  as  an  office  record. 

Debit  Ticket  for  Returned  Items  (C-8).  The  data  required  to 
complete  this  form  will  be  obtained  from  the  Member  Banks’  Form 
for  Returning  Items  Unpaid  (C-6),  or  from  the  Regional  Bank’s 
Statement  of  Returned  Items  (C-7),  depending  on  whether  the 
Member  Bank  to  which  the  item  was  returned  is  situated  in  the 
same  or  in  another  district. 

After  the  account  of  the  Member  Bank  has  been  charged,  this 
form  is  to  be  sent  to  the  Member  Bank  as  an  advice  of  such 
charge. 

Transfer  Department. 

It  is  intended  that  this  department  shall  handle  all  matters 
relating  to  the  transfer  of  funds  from  one  Member  Bank  to  an- 
other Member  Bank. 


113 


Transfer  Ticket  ( C-9 ).  This  form  will  be  used  only  when  both 
banks  are  situated  in  the  same  district.  The  three  copies  to  be 
prepared  are  to  be  utilized  as  follows: 

Original  — ■ To  be  used  as  a credit  ticket  and  then  sent  to  the 
Member  Bank  to  which  the  transfer  is  made,  as  an 
advice. 

Duplicate — To  be  used  as  a debit  ticket  and  then  sent  to  the 
Member  Bank  requesting-  the  transfer,  as  an  advice. 

Triplicate — To  be  retained  and  filed  after  confirmation  has  been 
received  from  the  Member  Bank  requesting  the 
transfer. 

Statement  and  Debit  Ticket  for  Telegraphic  Transfers  to  Banks 
in  Other  Districts  (C-10).  The  several  sections  of  this  form  will 
be  used  respectively  as  a confirmation  of  telegraphic  transfers  to 
Member  Banks  in  other  districts  and  as  a charge  to  the  Member 
Bank  requesting  the  transfer. 

The  original  of  the  statement  section  (b)  is,  to  be  sent  to  the 
Regional  Bank  to  which  the  transfers  are  made  as  a confirmation 
of  the  transfers  and  advice  of  credit;  the  duplicate  is  to  be  retained 
as  an  office  record.  The  debit  ticket  section  (a)  is  to  be  sent  to 
the  Member  Bank  requesting  the  transfer,  as  an  advice  of  the 
charge. 

Statement  and  Credit  Ticket  for  Telegraphic  Transfers  from 
Banks  in  Other  Districts  (C-ll).  Except  that  it  will  be  completed 
by  the  Regional  Bank  to  which  the  transfers  were  made,  this  form 
will  be  used  in  somewhat  the  same  manner  as  Form  C-10. 

The  original  of  the  statement  section  of  this  form  (b)  is  to  be 
sent  to  the  Regional  Bank  at  whose  request  the  transfers  were 
made  as  a confirmation  of  the  transfers  and  advice  of  charge;  the 
duplicate  is  to  be  retained  as  an  office  record.  The  credit  ticket 
section  (a)  is  to  be  sent  to  the  Member  Bank  to  which  the  transfer 
was  made,  as  an  advice  of  the  credit. 

Statement  and  Debit  Ticket  for  Correspondence  Transfers  to 
Banks  in  Other  Districts  (C-T2).  As  indicated  by  its  title,  this 
form  is  to  be  used  only  when  the  transfers  are  to  be  effected  by 
correspondence. 

The  original  of  the  statement  section  (b)  is  to  be  sent  to  the 
Regional  Bank  to  which  the  transfers  are  made  as  authorization 
of  transfer  and  advice  of  credit  for  the  amount  of  such  transfers; 
the  duplicate  is  to  be  retained  as  an  office  record.  The  debit  ticket 
section  (a)  is  to  be  sent  to  the  Member  Bank  requesting  the 
transfer,  as  an  advice  of  the  charge. 

Correspondence  Transfer  Credit  Ticket  (C-13).  This  form  will 
be  used  by  the  Regional  Bank  when  crediting  its  Member  Banks 
for  transfers  made  to  them  by  banks  situated  in  other  districts. 
It  will  be  prepared  from  the  Statement  of  Correspondence  Trans- 
fers, Form  C-12,  and  is  intended  to  serve  both  as  a credit  ticket 
and  as  an  advice  to  the  Member  Bank  to  which  the  transfer  is 
made. 


114 


Clearings  Department. 


The  In-Clearings  and  Out-Clearings  Divisions  of  this  department 
will  handle,  respectively,  the  checks  received  from  the  Clearing 
House  and  the  checks  sent  to  the  Clearing  House. 

The  records  of  this  department  will  be  limited  to  Proof  and 
Settlement  Sheets  containing  a record  of  the  amounts  of  the 
checks  received  from  and  sent  to  the  various  banks. 

It  is  intended  that  the  Clearings  Department  shall  sort  the 
checks  received  according  to  the  ledgers  to  which  they  apply,  and 
so  far  as  possible,  according  to  the  accounts  in  these  ledgers. 
Thereafter  the  Proof  Sheets  are  to  be  delivered  to  the  Bookkeeping 
Department  where  they  will  be  utilized  in  posting  the  debits  to 
the  accounts  of  the  Member  Banks  and  Government  Departments. 
The  items  also  are  to  be  sent  to  the  Bookkeeping  Department  for 
entry  in  the  Ledger  and  Daily  Statement.  As  totals  only  will  be 
posted  in  the  Journals  and  the  items  themselves  will  be  utilized 
in  preparing  the  Regional  Bank’s  record  of  the  charge  and  the 
Daily  Statements,  all  relisting  and  other  duplication  of  work  will 
bo  avoided. 

Collection  Department. 

In  addition  to  being  the  custodian  of  all  notes  received  from 
other  Regional  Banks  for  collection,  this  department  will  have 
charge  of  the  recording  and  transmitting  of  country  items  collect- 
ible through  Member  Banks.  Items  payable  locally  are  to  be  de- 
livered to  the  Note  Teller’s  Department  at  maturity  for  collection. 

Collection  Form  for  Notes  sent  out  ~by  Collection  Department 
(C-lIf).  The  several  copies  of  this  form  will  serve  respectively  as 
a letter  of  enclosure,  receiving  bank’s  acknowledgment,  charge 
ticket  and  office  record.  Four  copies  are  to  be  made  and  disposi- 
tion made  of  them,  as  follows: 

Original — To  be  sent  with  item,  as  a letter  of  enclosure,  to  col- 
lecting bank. 

Duplicate — To  be  sent  with  item  and  original  to  collecting  bank, 
by  which  it  is  to  be  signed  and  returned  to  Re- 
gional Bank. 

Triplicate — To  be  filed  by  Regional  Bank  in  note  file  until  ma- 
turity, and  then  turned  over  to  the  Note  Teller’s 
Department,  where  it  will  be  utilized  as  a debit 
ticket  for  the  charge  to  the  account  of  the 
collecting  bank  and  then  sent  forward  with  the 
daily  statement  as  an  advice  of  such  charge. 

Quadruplicate — To  be  retained  by  tne  Regional  Bank  in  numeri- 
cal order  as  a permanent  record. 

TRANSIT  DEPARTMENT. 

The  duties  of  the  Transit  Department  will  be  confined  to  the 
receiving  and  transmitting  of  checks,  drafts,  etc.,  for  Member 
Banks.  It  Is  intended  that  the  incoming  and  outgoing  mail  shall 
be  handled  by  separate  sub -departments  and  that  the  work  of  each 
shall  be  proved  independently. 


115 


Aside  from  the  charge  letter  for  outgoing  items,  the  records 
originating  in  this  department  will  be  limited  to  Proof  and 
Settlement  Sheets. 

Member  Banks  Remittance  Letter  (D-l).  While  it  is  highly 
desirable  that  the  member  banks  use  a standard  form  for  listing 
the  checks  deposited  with  their  Regional  Bank,  their  regular  stock 
can  be  utilized  if  it  allows  for  the  entering  of  the  place  where  the 
checks  are  payable.  Whatever  form  is  used,  however,  two  copies 
are  to  be  prepared — one  of  which  will  be  forwarded  with  the  items 
to  the  Regional  Bank  and  the  other  retained  by  the  Member 
Bank. 

The  items  are  to  be  assorted  and  thereafter  listed  on  separate 
letters  according  to  the  following  classification: 

Items  drawn  on  the  Regional  Bank  in  which  they  are  deposited. 

Items  payable  in  the  city  in  which  the  depositing  bank's  Re- 
gional Bank  is  situated. 

Items  payable  in  the  same  reserve  district,  but  outside  the  city 
in  which  the  Regional  Bank  is  situated — one  letter  for  each 
state  or  other  subdivision  adopted. 

Items  payable  in  other  reserve  districts — one  letter  for  “inside” 
items  and  another  for  “outside”  items.  The  “outside”  items, 
however,  are  to  be  classified  and  listed  according  to  the 
states  in  which  they  are  payable,  or  other  subdivisions 
adopted. 

Member  Banks’  Recapitulation  of  Deposits  with  Regional  Bank 
(D-2).  This  form  is  to  be  used  by  the  member  banks  for  sum- 
marizing and  classifying  the  items  deposited  according  to  the 
Transit  Time  Schedule. 

On  the  books  of  the  Member  Banks,  the  total  amount  of  the 
deposits  will  be  charged  immediately  to  a Transit  Account,  to 
which  credits  will  be  made  daily  for  the  amounts  due  to  be  col- 
lected on  that  day,  the  account  with  the  Regional  Bank  being 
correspondingly  charged. 

Upon  receipt  of  the  items  by  the  Regional  Bank,  the  account  of 
the  Member  Bank  will  be  credited  immediately  with  the  total 
amount  of  the  deposit,  regardless  of  the  time  required  for  the  col- 
lection of  such  of  the  items  as  are  payable  out-of-town.  In  order, 
however,  that  the  Regional  Bank  may  know  the  actual  free  bal- 
ances, a memorandum  column  has  been  provided  in  the  Member 
Banks’  Journal,  Form  G-l,  in  which  the  credits  will  be  analyzed 
under  the  dates  on  which  they  are  due  to  be  collected. 

For  further  information  relative  to  the  handling  of  the  transit 
items  reference  is  made  to  the  section  of  the  Committee’s  detailed 
report  devoted  to  Transit  Department  matters. 

Regional  Bank’s  List  of  Items  drawn  on  Member  Banks  (D-3). 
This  form  will  be  used  by  the  Regional  Banks  when  transmitting 
checks  to  their  Member  Banks.  The  original  is  to  accompany  the 
items  and  the  duplicate  retained  as  an  office  record. 


116 


FOREIGN  EXCHANGE  DEPARTMENT. 

Under  the  terms  of  the  Federal  Reserve  Act,  the  Foreign  Ex- 
change Department  will  be  empowered  to  purchase  and  sell  bills 
of  exchange,  demand  and  time  drafts,  cable  transfers,  and  other 
classes  of  commercial  paper  and  securities;  also  gold  coin,  bullion, 
etc.  To  provide  for  the  proper  recording  of  these  transactions, 
books  and  forms  will  be  required  as  follows:  Cash  Books,  Draft 

and  Remittance  Registers,  Liability  Records,  a Journal,  a Cor- 
respondent’s Ledger,  and  a General  Ledger  in  which  will  be  car- 
ried the  controlling  accounts  of  the  Department  and  from  which 
the  Daily  Statement  of  Condition  will  be  compiled. 

Cash  Receipts  Book  (F-l).  This  book  will  be  kept  by  the 
Receiving  Clerk  of  the  Department,  and  is  intended  to  contain  a 
complete  record  of  all  transactions  involving  the  receipt  of  cash 
or  checks. 

In  the  columns  reserved  for  the  “date,”  “particulars”  and 
“debits”  will  be  entered,  respectively,  the  date  and  a brief  ex- 
planation of  the  transaction  and  the  amount  of  cash  received. 
The  “credits”  columns  are  to  be  utilized  for  classifying  the  entries 
in  the  “debits”  section  according  to  the  accounts  to  which  such 
receipts  should  be  credited. 

At  the  close  of  business  each  day  the  columns  in  both  the 
“debits”  and  “credits”  sections  are  to  be  totalled  and  proved,  tickets 
being  prepared  thereafter  for  the  day’s  receipts  of  each  currency, 
and  for  the  total  credits  applicable  to  each  of  the  accounts  enumer- 
ated in  the  “credits”  section.  These  tickets,  after  approval  by  the 
proper  officer,  are  to  be  delivered  to  the  General  Bookkeeper  of  the 
Department  for  entry. 

Cash  Disbursements  Book  (F-2).  In  this  book,  which  is  to  be 
kept  by  the  Disbursing  Clerk  of  the  Department,  will  be  entered 
the  details  of  the  cash  disbursed  and  the  checks  issued  for  bills 
of  exchange  and  cable  transfers  purchased,  and  for  other  purposes. 

All  entries  are  to  be  supported  by  properly  approved  memo- 
randa. In  every  case,  such  memoranda  should  bear  the  initials 
of  the  clerks  responsible  for  the  calculation  and  verification  of  the 
rates  and  conversions,  as  well  as  the  initials  of  the  approving- 
officer. 

Except  as  regards  the  nature  of  the  transactions  to  be  re- 
corded therein,  the  Cash  Disbursements  Book  is  to  be  used  in 
precisely  the  same  manner  as  the  Cash  Receipts  Book. 

Draft  Advice  and  Record  (F-S).  The  record  of  drafts  drawn 
consists  of  four  sections,  which  are  to  be  prepared  at  one  writing 
and  utilized  as  follows; 

Section  “a” — Original  advice — To  be  sent  by  first  steamer  to 
the  bank  on  which  the  draft  is  drawn. 

, “b” — Duplicate  advice — To  be  sent  by  second  steamer 

to  the  bank  on  which  the  draft  is  drawn. 

“c” — To  be  filed  with  the  correspondence  relating  to 
the  bank  on  which  the  draft  is  drawn. 


117 


“d” — To  be  inserted  in  a suitable  binder  and  preserved 
as  the  Department’s  record  of  drafts  drawn. 

All  four  sections,  when  /completed,  will  show  the  name  and 
address  of  the  bank  on  which  the  draft  is  drawn;  the  date  and 
number  of  the  draft;  to  whose  order  it  is  drawn;  the  tenor;  the 
amount;  and  the  names  of  the  steamers  by  which  the  drafts  and 
advices  are  being-  forwarded.  On  Sections  “c”  and  “d”  will  be 
entered,  in  addition,  the  rate,  the  amount  in  United  States  cur- 
rency, and  to  whom  the  draft  was  sold. 

At  the  close  of  business  each  day  tickets  are  to  be  prepared 
for  the  daily  totals  of  the  drafts  drawn,  which  tickets,  after  ap- 
proval, are  to  be  delivered  to  the  General  Bookkeeper  of  the 
Department  for  entry. 

Remittance  Advice  and  Record  (F4).  This  also  is  a manifold 
form  consisting  of  four  sections,  which  are  to  be  utilized  as  follows: 

Section  “a” — Original  advice — To  be  sent  by  first  steamer  to 
the  correspondent. 

“b” — Duplicate  advice — To  be  sent  by  second  steamer 
to  correspondent. 

“c” — To  be  used  as  a voucher  for  the  debit  postings 
to  the  liability  records,  and  then  filed  in  chron- 
ological order. 

“d” — To  be  inserted  in  a suitable  binder  and  preserved 
as  the  Department’s  record  of  remittances  to 
its  correspondents. 

Upon  completion,  all  four  sections  will  show  the  name  and 
address  of  the  correspondent  to  which  the  bill  is  remitted;  the 
names  of  the  steamers  by  which  the  bills  and  advices  will  be 
forwarded;  the  date;  index  number;  the  names  of  the  drawer, 
endorser  and  drawee;  the  tenor  and  amount  of  the  bill;  a de- 
scription of  documents  accompanying  it,  and  the  terms  under 
which  such  documents  are  to  be  surrendered.  The  office  copies — 
Sections  “c”  and  “d” — will  contain,  in  addition  to  the  foregoing 
data,  the  rate,  amount  in  United  States  currency,  date  of  credits, 
and  remarks  if  necessary. 

At  the  close  of  business  each  day  tickets  are  to  be  prepared 
for  the  daily  totals  of  the  remittances,  which  tickets,  after  ap- 
proval, are  to  be  delivered  to  the  General  Bookkeeper  of  the  De- 
partment for  entry. 

Customers’  Liability  Record  (F-5).  In  this  record  will  be 
entered  under  the  names  of  the  customers  their  contingent  lia- 
bility to  the  Department  as  drawers,  endorsers,  and  guarantors. 

The  particulars  to  be  entered  will  include  the  name,  address, 
business,  and  rating  of  the  customer,  the  date  and  number  of  the 
item,  the  names  of  the  drawer  and  drawee,  the  tenor,  the  ap- 
proximate due  date,  and  the  liability  amount.  Provision  being 
made  for  entry  in  separate  columns  of  the  liability  of  the  cus- 
tomer as  drawer,  as  endorser,  and  as  guarantor,  this  record  will 
of  course  show  the  nature  of  the  customer’s  liability,  as  well  as 
the  aggregate  amount. 


US 


The  debit  entries  will  be  posted  from  Section  “c”  of  the  Re- 
mittance Advice  and  Record,  Form  F-4. 

As  the  items  mature  and  are  paid  or  otherwise  disposed  of, 
the  customer  should  be  credited  in  the  proper  columns,  and  the 
amounts  in  the  “Balance”  columns  reduced  accordingly. 

Payers’  Liability  Ledger  (F-6).  This  ledger  will  contain  the 
details  of  the  payers'  liability  to  the  Department,  both  as  drawees 
and  as  acceptors. 

The  ledger  sheets  will  be  headed  with  the  name,  address,  busi- 
ness, and  rating-  of  the  payer,  and  will  show  for  each  item  the  date, 
the  index  number,  the  name  of  the  customer,  the  tenor,  the  ap- 
proximate due  date,  and  the  liability  amount.  Separate  columns 
being  provided  for  the  entry  of  the  liability  as  drawee  and  as  ac- 
ceptor, the  extent  of  the  payers’  liability  under  each  of  these 
classifications  is  already  ascertainable. 

The  debit  entries  will  be  posted  from  Section  “c”  of  the  Remit- 
tance Advice  and  Record,  Form  F-4. 

As  the  items  mature  and  are  paid,  the  payments  should  be 
posted  in  the  proper  credit  column  and  the  amount  in  the  “Balance” 
columns  reduced  accordingly. 

Journal  (F-7).  Transfers  from  one  account  to  another,  ad- 
justments occasioned  by  interest  charges,  and  other  transactions 
not  originating  in  the  Cash  Books  and  the  Draft  and  Remittance 
Registers,  are  to  be  entered  in  the  Journal.  Being  columnar  in 
arrangement,  the  posting  of  individual  items  to  the  ledgers  will 
be  necessary  only  in  connection  with  the  miscellaneous  items  ap- 
pearing in  the  column  head  “Sundry  Accounts.” 

All  entries  are  to  be  supported  by  properly  approved  tickets. 

Correspondents’  Ledger  (F-8).  In  this  ledger  will  be  carried 
the  accounts  of  the  foreign  banks  selected  as  correspondents 
or  agents. 

All  entries  other  than  those  posted  direct  from  the  draft  and 
remittance  records  are  to  be  supported  by  self-explanatory  and 
properly  approved  tickets. 

The  particulars  to  be  recorded  include  the  date  and  a brief 
description  of  the  transaction,  the  index  number  assigned  the 
item,  the  value  date,  and  the  amount.  Both  the  foreign  amount 
and  its  equivalent  in  dollars  are  to  be  entered.  The  balance  is 
to  be  carried  in  the  dollar  amount  only,  as  the  foreign  currency 
balance  would  not  be  needed  except  when  the  account  is  to  be 
reconciled.  As  advices  for  charges  are  received  from  the  foreign 
correspondents,  the  amounts  of  such  charges  are  to  be  entered 
in  the  “Charges”  column  opposite  the  item  to  which  they  apply, 
after  which  the  net  amounts  are  to  be  extended  in  the  column 
so  headed. 

The  Auditor  will  be  required  to  attend  to  the  reconciliation  of 
the  statements  received  from  correspondents.  Form  Y-3  has  been 
provided  for  use  in  this  connection. 

General  Ledger  (F-9).  The  General  Ledger  of  the  Foreign 
Exchange  Department  is  to  be  a bound  book  and  will  contain  all 


119 


of  the  control  accounts  relating  to  the  resources  and  liabilities  of 
the  Foreign  Exchange  Department,  and  the  earnings,  expenses, 
and  Profit  and  Loss  Accounts. 

All  entries  are  to  be  supported  by  properly  approved  tickets. 

Daily  Statement  Book,  (F-10).  At  the  close  of  business  each 
day  the  General  Ledger  balances  are  to  be  entered  in  this  book, 
which  will  thus  constitute  a daily  record  of  the  resources  and 
liabilities  of  the  Department. 

BOOKKEEPING  DEPARTMENT. 

The  Bookkeeping  Department  will  have  charge  of  the  accounts 
of  the  Member  Banks  and  Government  departments,  also  the  gen- 
eral accounts.  In  addition,  it  will  be  responsible  for  the  preparation 
of  the  Daily  Statement  of  Condition  and  the  Monthly  Statement  of 
Earnings  and  Expenses  and  for  the  maintenance  of  the  analytical 
records  of  earnings  and  expenses. 

Member  Banks’  Journal  (G-l).  This  Journal  will  be  used  for 
assembling  the  daily  debits  and  credits  and  determining  the  balances 
of  the  Member  Banks  at  the  close  of  each  day’s  business. 

In  the  “Debit”  columns  will  be  posted  the  daily  charges  to  each 
account  as  shown  by  the  Proof  Sheets  prepared  by  the  Clearings, 
Transit,  and  other  departments.  In  the  column  headed  “Credits  to 
Ledger,”  will  be  posted  the  total  of  the  Credit  Letters  received  from 
the  Member  Banks.  At  the  close  of  business  each  day  the  balances 
are  to  be  extended  and  proved. 

In  order  that  the  free  balance  in  each  account  may  be  readily 
ascertained,  we  have  included  under  the  heading  “Credits”  a memo- 
randum column  entitled  “Credits  in  Transit,”  in  which  the  sub- 
totals of  the  Credit  Letters  are  to  be  distributed  according  to  the 
dates  on  which  the  items  are  due  to  be  collected. 

While  this  style  of  Journal  would  not  be  suitable  for  a bank 
having  a large  number  of  accounts,  many  of  which  are  inactive, 
it  is  especially  desirable  in  the  case  of  the  Regional  Banks,  where 
there  will  be  a comparatively  small  number  of  accounts,  all  of 
which  will  probably  be  very  active. 

In  addition  to  serving  as  a medium  for  assembling  the  daily 
debits  and  credits,  the  Member  Banks’  Journal  will  furnish  a check 
on  the  entries  in  the  Member  Banks'  Ledger — the  entries  in  the 
Journal  being  compiled  from  the  Proof  Sheets  and  those  in  the 
Ledger  direct  from  the  items. 

Government  Deposits  Journal  (G-2).  Except  that  it  does  not 
contain  a column  for  credits  in  transit,  this  form  is  very  similar 
in  arrangement  to  the  Member  Banks’  Journal  and  is  to  be  used 
in  the  same  manner. 

General  Journal  (G-3).  By  the  use  of  this  Journal  for  assem- 
bling the  daily  debits  and  credits  to  the  General  accounts,  the  daily 
statement  will  be  completed  simultaneously  with  the  balancing  of 
the  accounts.  The  daily  statement  could,  of  course,  be  prepared 
direct  from  the  General  Ledger,  but  in  that  event  it  would  be  far 
more  difficult  to  locate  any  differences  which  might  arise. 


120 


Member  Bank’s  Ledger  and  Daily  Statement  (G-4a).  This  form 
will  be  prepared  in  duplicate  direct  from  the  items.  After  the  day’s 
transactions  have  been  entered,  the  original — the  Ledger  Sheet — 
is  to  be  inserted  in  a suitable  binder  for  use  as  the  Regional 
Bank’s  record,  and  the  duplicate  forwarded  to  the  Member  Bank 
concerned  for  use  as  an  account  current  and  advice  of  the 
charges  and  credits  made  by  the  Regional  Bank. 

An  explanation  of  the  key  letters  to  be  used  in  the  preparation 
of  the  Ledger  accounts  and  statements  of  the  Member  Banks  will 
be  found  in  a subsequent  section  of  this  report. 

Federal  Reserve  Bank’s  Ledger  and  Daily  Statement  ( G-lfib) 
Except  that  it  will  be  reserved  for  recording  transactions  with  other 
Regional  Banks,  this  form  is  very  similar  to  the  Member  Bank’s 
Ledger  and  Daily  Statement,  and  is  to  be  used  in  precisely  the 
same  manner. 

General  Ledger  (G-5).  This  is  to  be  a bound  book  and  will  con- 
tain an  account  for  each  item  appearing  in  the  Statement  of  Con- 
dition. All  entries  must  be  supported  by  properly  authorized  debit 
and  credit  tickets. 

Record  of  Certified  Checks  Paid  ( G-6) . Record  of  Cashier’s 
Checks  Paid  (G-7).  These  forms  will  be  used  for  listing,  by  num- 
bers and  amounts,  the  Certified  Checks  and  Cashier’s  Checks  paid 
each  day.  The  daily  totals  of  the  checks  paid,  as  recorded  on  these 
forms,  are  intended  to  support  the  debits  to  the  General  Ledger 
controlling  accounts  for  Certified  Checks  and  Cashier’s  Checks. 

Expense  Voucher  (G-8).  This  consists  of  a check  and  statement 
to  be  forwarded  to  the  creditor  and  a carbon  duplicate  to  be  attached 
to  and  filed  with  the  relative  invoice.  Before  signing  the  check  sec- 
tion, the  Cashier  should  see  that  the  duplicate  bears  the  approval 
of  the  proper  persons. 

Expense  Distribution  Record  (G-D).  This  form  will  be  used 
for  distributing  under  appropriate  headings  the  charges  to  Expense 
Account.  Separate  columns  are  provided  for  salaries,  directors’  fees, 
legal  services,  postage,  printing  and  stationery,  light  and  water, 
rent,  freight  and  express,  insurance  and  bonds,  telephone  and  tele- 
graph, taxes,  etc.  The  details  of  the  expenses  incurred  will  be 
obtained  from  the  debit  tickets  covering  cash  disbursed  by  the 
Paying  Teller  or  from  the  Expense  Voucher  in  the  event  of  the 
payment  being  made  by  check. 

A somewhat  similar  form  could  be  used  for  analyzing  the 
earnings. 

Comparative  Statement  of  Earnings  and  Expenses  (G-10).  This 
statement,  which  is  to  be  prepared  monthly,  will  show  in  compara- 
tive form  the  details  of  the  earnings  and  expenses  for  the  current 
month  and  the  fiscal  period  to  date  as  well  as  the  increases  or  de- 
creases over  the  previous  month  and  period. 

Most  of  the  data  required  for  the  completion  of  this  statement 
will  be  obtainable  from  the  General  Ledger  and  the  Expense  Dis- 
tribution Record. 


121 


Statement  of  Condition  ( G-ll J.  This  is  to  be  prepared  daily 
from  the  General  Journal  and  supporting  records. 

Suggested  Condensed  Gross  Statement  for  Report  to  Federal 
Reserve  Board  (G-12)  ; Suggested  Condensed  Net  Statement  for  Re- 
port to  Federal  Reserve  Board  (G-13).  These  are  alternative  forms. 
Whichever  is  adopted  will  be  compiled  from  the  Daily  Statement 
of  Condition  (Form  G-ll). 

KEY  LETTERS  TO  BE  USED  IN  THE  PREPARATION  OF  THE 
LEDGER  ACCOUNTS  AND  DAILY  STATEMENTS. 

In  order  to  minimize  the  clerical  work  involved  in  the  prepara- 
tion of  the  Ledger  accounts  and  the  statements  for  Member  Banks 
and  other  Regional  Banks,  it  is  proposed  that  key  letters  shall  be 
used  for  describing  routine  transactions.  For  convenience,  these 
key  letters  and  their  definitions  will  be  printed  on  the  back  of  the 
daily  statements. 

Following  is  a list  of  the  key  letters  relating  to  transactions 
with  the  Member  Banks,  their  definitions,  and  a full  description  of 
the  transactions  where  necessary.  For  illustrative  purposes,  the 
transactions  are  described  from  the  standpoint  of  the  Regional 
Bank  situated  in  New  York. 


DEBITS. 

A.  Items  on  you  forwarded  you  preceding  business  day. 

Items  drawn  on  Member  Banks  and  forwarded  to  them  by 
Regional  Banks  are  to  be  charged  to  the  Member  Banks 
the  day  on  which  they  will  be  received  by  the  Member 
Banks,  being  carried  until  that  time  in  a transit  account 
on  the  Regional  Bank’s  books.  Assuming  that  all  Mem- 
ber Banks  will  be  within  one  day’s  mail  of  their  Regional 
Banks,  the  charges  would  be  for  items  forwarded  the  pre- 
ceding business  day. 

AT.  Deposited  with  Assistant  Treasurer. 

For  deposits  made  by  Regional  Bank  with  the  Assistant 
Treasurer  of  the  United  States  for  credit  of  Member  Banks. 

CA.  Charged  as  per  separate  advice  to-day. 

To  be  used  for  special  charges  not  covered  by  other  key 
letters. 

CC.  Currency  or  coin  shipped  as  per  advice  to-day. 

CL.  Clearing  expenses. 

For  monthly  charges  to  Member  Banks  for  expense  incurred 
in  the  collection  of  items. 

CN.  Note  in  your  hands  for  our  account  due  to-day. 

For  Regional  Bank’s  notes  or  bills  sent  to  Member  Bank  for 
collection  and  charged  to  it  on  due  date,  also  for  notes  and 
bills  received  from  other  Regional  Banks  and  forwarded  to 
a Member  Bank  for  collection,  for  which  a charge  will  be 
made  on  the  due  date. 

HD.  Held  as  per  advice  to-day. 

For  item  temporarily  unpaid  and  retained  for  collection. 


122 


NT.  Handed  to  Notary  as  per  advice  to-day. 

For  items  received  from  Member  Banks,  unpaid  at  close  of 
day,  which  have  been  protested  and  returned  to  the  Mem- 
ber Banks  from  which  received. 

PF.  Protest  Fees  as  per  advice  to-day. 

For  fees  charged  on  protested  items  returned. 

RT.  Item  returned  as  per  advice  to-day. 

For  items  drawn  on  Member  Banks  in  other  districts  which 
were  not  paid  and  have  been  returned  direct  to  our  Mem- 
ber Bank. 

TC.  Transfer  t>y  correspondence  as  per  advice. 

TT.  Transfer  t>y  telegraph  as  per  advice. 

CREDITS. 

A.  Cash  letter  received. 

For  items  drawn  on  Member  Banks  in  our  district  and  in 
other  districts  received  from  our  Member  Banks  for  credit. 
CA.  Credited  as  per  separate  advice  to-day. 

To  be  used  for  special  credits  not  covered  by  other  key 
letters. 

CC.  Currency  or  coin  received. 

DC.  Deposit  for  your  account  as  per  advice  to-day. 

For  deposits  made  by  third  party  with  Regional  Bank  for 
credit  of  Member  Bank. 

DI.  Dividend  payable  to-day. 

For  dividends  payable  to  Members  Banks,  which  are  to  be 
credited  direct  to  their  accounts. 

IR.  Interest  rebated. 

For  unearned  interest  or  discount  on  loans  or  discounts 
taken  up  prior  to  due  date. 

RD.  Proceeds  of  Doan  or  Rediscount. 

PF.  Protest  Fees. 

For  fees  on  unpaid  items  returned  by  our  Member  Banks. 
RT.  Item  returned  as  per  your  advice. 

For  unpaid  collection  items  returned. 

TC.  Transfer  by  correspondence  as  per  advice. 

TT.  Transfer  by  telegraph  as  per  advice. 

The  key  letters  to  be  used  in  describing-  the  transactions  arising 
among  the  Regional  Banks  are  similar  to  those  prescribed  for 
transactions  between  the  Regional  Banks  and  their  Member 
Banks,  except  for  such  changes  as  are  necessary  on  account  of 
the  altered  character  of  the  transactions.  The  following  is  a 
list  of  the  key  letters  to  be  used  for  Regional  Bank  transactions, 
with  explanations: 

DEBITS. 

A.  Items  on  Member  Banks  in  your  district  forwarded  you. 

For  items  drawn  on  Member  Banks  in  other  districts  for- 
warded their  Regional  Bank  for  credit. 

CA.  Charged  as  per  separate  advice  to-day. 

To  be  used  for  special  charges  not  covered  by  other  key 
letters. 


123 


CC.  Currency  or  coin  shipped  as  per  advice  to-day. 

CN.  Notes  due  to-day  as  per  our  list. 

For  notes  or  bills  sent  to  other  Regional  Banks  for  collec- 
tion, which  are  to  be  charged  on  due  date. 

EC.  Entered  for  collection  as  per  advice  to-day. 

For  items  received  from  other  Regional  Banks  temporarily 
unpaid  and  retained  for  collection. 

NT.  Handed  to  Notary  as  per  advice  to-day. 

For  items  received  from  other  Regional  Banks  unpaid  at 
close  of  day  which  have  been  protested  and  returned  to 
the  Member  Banks  from  which  received. 

PF.  Protest  fees  as  per  advice  to-day. 

For  fees  charged  on  protested  items  returned. 

RT.  Items  returned  as  per  our  list. 

For  unpaid  collection  items. 

TC.  Transfer  by  correspondence  as  per  advice. 

TT.  Transfer  by  telegraph  as  per  advice. 

CREDITS. 

A.  Items  on  Member  Banks  in  our  district  received  from  you. 

For  items  drawn  on  'Member  Banks  in  our  district,  forward- 
ed us  for  credit. 

CA.  Credited  as  per  separate  advice  to-day. 

To  be  used  for  special  credits  not  covered  by  other  key 
letters. 

CC.  Currency  or  coin  received. 

CN.  Notes  due  to-day  as  per  your  list. 

For  notes  or  bills  received  from  other  Regional  Banks  for 
collection,  which  are  to  be  credited  on  due  date. 

EC.  Item  entered  for  collection  now  paid. 

For  items  received  from  other  Regional  Banks  temporarily 
unpaid  as  described  under  EC.  in  “Debits,”  now  paid  and 
credited. 

IR.  Interest  rebated. 

For  unearned  interest  or  discount  on  loans  or  discounts 
taken  up  prior  to  due  date. 

PF.  Protest  Fees. 

For  fees  charged  on  protested  item  returned. 

RD.  Proceeds  of  rediscount. 

RT.  Items  returned  as  per  your  list. 

For  items  returned  unpaid  to  our  Member  Banks. 

TC.  Transfer  by  correspondence  as  per  advice. 

TT.  Transfer  by  telegraph  as  per  advice. 

MISCELLANEOUS  FORMS. 

Stock  Subscription  Ledgers  (M-l  and  M-2).  These  forms  will 
be  used  for  recording  the  subscriptions  received  from  Member 
Banks  and  from  individuals,  and  the  instalments  paid  on  account  of 
such  subscriptions. 

The  record  of  Member  Banks’  subscriptions— Form  M-l — is  de- 
signed to  show  the  number,  name  and  location  of  the  subscribing 


124 


bank,  its  paid  up  Capital  Stock  and  Surplus,  the  amount  of  the 
subscription  required  by  law,  and  the  instalments  paid  thereon. 
As  the  amount  of  the  subscription,  divided  by  the  par  value  per 
share  ($100.00)  will  give  the  number  of  shares  represented  by  the 
subscription,  it  has  not  been  considered  necessary  to  provide  a 
special  column  for  entry  of  the  number  of  shares. 

For  recording  subscriptions  received  from  individuals,  Form  M-2 
will  be  utilized.  The  front  of  this  form  is  ruled  for  entry  of  the 
name,  address  and  legal  residence  of  the  subscriber,  the  date  and 
amount  of  the  subscription,  and  the  date  and  amount  of  the  pay- 
ments on  account  of  such  subscription.  The  reverse  will  contain 
a record  of  the  stock  certificates  issued  to  the  subscriber  and  the 
stock  certificates  surrendered  for  transfer. 

Stock  Subscription  Certificate  (MS).  This  form  is  designed  to 
serve  both  as  a subscription  certificate  and  as  a receipt  for  the 
instalment  payments.  It  is  intended  to  be  used  principally  in 
connection  with  subscriptions  received  from  individuals. 

Stock  Subscription  Receipt  (M-4).  The  stock  aliotted  to  the 
Member  Banks  being  non-transferable  it  is  recommended  that  they 
be  given  receipts  for  the  individual  payments  instead  of  the  Stock 
Subscription  Certificate  described  in  the  preceding  paragraph. 

Stock  Certificate  Receipt  (M-5).  This  form  consists  of  a stub 
and  a detachable  receipt  on  which  the  subscribers  will  be  required 
to  acknowledge  receipt  of  the  stock  certificates  issued  to  them. 

Stock  Transfer  Record  ( M-6 ).  This  form  will  be  used  for  re- 
cording transfers  for  account  of  stockholders  other  than  the  Mem- 
ber Banks.  It  is  ruled  for  entry  of  the  date  of  the  transfer;  the  se- 
rial number  of  the  certificate  surrendered  and  the  number  of  shares 
represented  thereby;  the  name  of  the  transferrer;  the  number  of 
the  certificate  issued  in  exchange;  the  number  of  shares  repre- 
sented by  the  new  certificate,  and  the  name  and  address  of  the 
transferee. 

Standing  Order  to  Mail  Dividend  (M-7).  Each  stockholder  to 
whom  dividend  checks  will  be  issued,  should  be  required  to  com- 
plete a copy  of  this  form.  If  the  dividends  are  to  be  remitted  to 
some  one  other  than  the  owner  of  the  stock,  the  signature  of  the 
stockholder  should  be  acknowledged  before  a notary  public. 

Dividend  Register  (MS).  As  most  of  the  stockholders  of  the 
Regional  Banks  will  be  Member  Banks,  whose  holdings  are  not 
transferable,  a Dividend  Register  of  this  type  should  meet  all  re- 
quirements. It  is  ruled  to  show  the  names  and  addresses  of  the 
stockholders  and  the  dividends  applicable  to  their  holdings,  also 
the  number,  rate  and  total  amount  of  the  dividend,  the  date  on 
which  it  was  declared,  the  date  paid,  and  the  date  credited  to  the 
liability  account  for  dividends  declared. 

, Dividends  payable  to  Member  Banks  are  to  be  credited  to  their 
accounts  direct  from  the  Dividend  Register.  For  the  dividends 
payable  to  other  stockholders,  dividend  checks  will  be  issued. 

Authority  to  Open  Account  until  Regional  Bank  ( M-9 ).  Each 


125 


Member  Bank  opening  an  account  with  its  Regional  Bank  should 
be  required  to  furnish  the  latter  with  a certified  copy  of  the  reso- 
lution of  the  Board  of  Directors  authorizing  such  action.  Form  M-9 
is  recommended  for  use  in  this  connection. 

Signature  Card  (M-10).  Simultaneously  with  the  opening  of  an 
account,  the  Member  Bank  will  be  required  to  file  with  its  Regional 
Bank,  on  this  form,  a list  of  the  signatures  to  be  recognized  by 
the  Regional  Bank  in  the  payment  of  funds  or  the  transaction  of 
ether  business  for  account  of  the  Member  Bank. 

Purchase  Order  (M-ll).  This  form  is  designed  to  furnish  a 
suitable  record  of  the  orders  issued  for  the  purchase  of  stationery 
and  other  supplies.  The  original  of  the  order  is  to  be  forwarded 
to  the  supplier  and  the  duplicate  retained  for  office  use. 

Stock  Record  for  Supplies  (M-12).  For  each  article  carried  in 
stock  separate  cards  of  this  form  are  to  be  used,  on  which  will  be 
entered  the  description,  the  index  number  and  the  location  of  the 
stock;  the  purchases;  the  issues;  and  the  balance. 

FEDERAL  RESERVE  AGENT. 

The  Act  stipulates  that  the  Federal  Reserve  Agent  shall  be  a 
person  of  tested  banking  experience  and  that  he  shall  maintain, 
under  regulations  to  be  established  by  the  Federal  Reserve  Board, 
a local  office  of  said  Board  on  the  premises  of  the  bank  with  which 
he  is  connected.  These  stipulations  will  necessitate  the  Federal 
Reserve  Agent  keeping  suitable  records  of  the  notes  received,  issued 
and  withdrawn,  of  the  rediscounts  and  other  paper  held  as  col- 
lateral to  note  issues,  and  such  other  records  as  may  be  prescribed 
by  the  Federal  Reserve  Board. 

Record  of  Federal  Reserve  Notes  Received  from  the  Comptroller 
of  the  Currency  (X-l).  In  the  respective  columns  of  this  record 
will  be  entered  the  date  and  nature  of  the  transaction,  the  amount 
of  notes  received  from  the  Comptroller,  the  amount  returned  to  the 
Comptroller  and  the  balance  to  be  accounted  for  by  the  Federal 
Reserve  Agent.  This  balance  should  equal  the  amount  of  notes  on 
hand  as  shown  by  Form  X-2  and  the  notes  issued  to  the  Regional 
Bank  as  recorded  on  Form  X-3. 

Record  of  Federal  Reserve  Notes  on  Hand  (X-2).  This  record 
will  show  the  details  of  the  notes  received  from  the  Comptroller  of 
the  Currency  or  returned  by  the  Regional  Bank,  the  notes  issued 
to  the  Regional  Bank  or  returned  to  the  Comptroller,  and  the  bal- 
ance, subdivided  as  between  notes  on  hand  which  are  fit  for  cir- 
culation and  notes  which  are  not  fit  for  circulation  and  are  to 
be  returned  to  the  Comptroller. 

Record  of  Security  furnished  hy  Regional  Bank  and  Federal 
Reserve  Notes  Issued  (X-8).  From  this  record  the  Federal  Reserve 
Agent  will  be  able  to  ascertain  at  any  time  the  amount  of  redis- 
counts and  other  paper  hypothecated  with  him  by  the  Regional 
Bank  and  the  amount  of  Federal  Reserve  Notes  issued  against 
such  security. 


126 


The  total  amount  of  each  'borrower’s  paper  hypothecated  with 
the  Federal  Reserve  Agent  being-  ascertainable  from  the  Loan  De- 
partment records,  it  will  not  be  necessary  for  the  Agent  to  maintain 
a special  record  for  this  purpose. 

Application  for  Federal  Reserve  Notes  This  form,  which 

will  be  used  by  the  Regional  Bank  when  applying  for  Federal 
Reserve  Notes,  is  to  be  prepared  in  duplicate.  The  original  is  to 
be  retained  by  the  Regional  Bank  as  authority  for  the  credit  to 
Circulation  Account,  while  the  duplicate  is  to  be  signed  by  the 
Paying  Teller  of  the  Regional  Bank  in  acknowledgment  of  the  re- 
ceipt of  the  notes  and  returned  to  the  Federal  Reserve  Agent  for 
entry  on  his  records. 

Retirement  of  Federal  Reserve  Notes  (X-5).  Except  that  it  is 
to  be  used  in  connection  with  the  retirement  of  Federal  Reserve 
Notes,  this  form  is  very  similar  to  X-4. 

Record  of  Notes  Hypothecated  ivith  Federal  Reserve  Agent 
(B-15).  Record  of  Collateral  Withdrawn  from  Federal  Reserve 
Agent  (B-16).  As  explained  in  a preceding  section  of  this  report, 
the  Loan  Department  will  prepare  these  forms  in  duplicate  in 
order  that  the  Federal  Reserve  Agent  may  be  able  to  retain  a copy 
for  his  own  use. 

Advice  of  Currency  Returned  to  Comptroller  (X-6).  This  form 
will  be  used  by  the  Federal  Reserve  Agent  for  advising  the  Comp- 
troller of  shipments  of  mutilated  currency. 

Each  package  of  currency  returned  to  Washington  should  be 
accompanied  by  a detailed  schedule  of  the  contents,  showing  both 
the  serial  numbers  of  the  notes  returned  and  their  denomination. 

Daily  Report  on  Note  Circulation  (X-7) . The  Federal  Reserve 
Agent  will  report  daily  to  the  Federal  Reserve  Board  on  this  form, 
the  total  issues  and  withdrawals  of  Federal  Reserve  Notes,  the 
amount  of  unfit  notes  returned  to  Washington,  and  the  total  amount 
of  notes  on  hand  at  the  close  of  the  day. 

AUDIT  DIVISION. 

The  function  of  the  Audit  Division  will  be  to  audit  the  records 
and  securities  of  the  various  departments  comprising  the  Banking 
Division,  also  those  of  the  Federal  Reserve  Agent. 

The  Auditor  in  charge  of  this  division  should  be  thoroughly  ac- 
quainted with  the  banking  business  in  all  its  phases  and  competent 
to  judge  if  every  part  of  the  work  is  being  properly  performed. 
While  not  under  their  jurisdiction,  the  Auditor  should  cooperate 
with  the  officers  conducting  the  Banking  Division  so  far  as  is  nec- 
essary to  safeguard  the  interests  of  the  bank. 

Under  no  circumstances  should  either  the  Auditor  or  his  assist- 
ants be  allowed  to  prepare  or  approve  tickets  of  original  entry.  On 
the  other  hand,  the  Audit  Division  should  be  required  to  prepare 
all  tickets  needed  for  the  correction  of  errors;  all  error  tickets 
should,  however,  be  referred  to  r.n  officer  in  the  Banking  Division 
for  approval  before  delivery  to  the  bookkeepers  for  entry. 

A classification  and  analysis  of  the  duties  of  the  Audit  Division 
follow: 


127 


General  Proof.  At  the  close  of  business  each  day  the  various 
departments  will  deliver  their  settlement  sheets  to  the  Audit  Divi- 
sion, where  the  inter-departmental  transactions  will  be  verified  and 
the  departmental  totals  assembled  on  the  Auditor’s  General  Proof 
Sheet,  Form  T-l. 

Reconcilements.  The  reconciliations  of  the  accounts  carried 
with  other  Regional  Banks,  with  Member  Banks  and  Government 
Departments,  and  with  correspondents  abroad,  will  be  prepared  by 
the  Audit  Division.  The  domestic  accounts  are  to  be  reconciled  on 
Form  Y-2  and  the  foreign  accounts  on  Form  Y-3.  Reference  to 
these  forms  will  show  that  in  each  case  the  reverse  can  be  utilized 
for  listing  the  outstandings. 

Departmental  Audits.  Each  of  the  departments  comprising  the 
Banking  Division  should  be  audited  at  irregular  intervals  during 
the  year.  These  audits  should  include  a verification  of  the  cash, 
loans,  investment  securities,  and  other  resources;  a comparison  of 
the  securities  held  as  collateral  with  the  collateral  records;  a proof 
of  the  liability  accounts  and  a detailed  check  of  the  accrual  ac- 
counts and  the  accounts  relating  to  earnings  and  expenses. 

The  securities  and  accounts  of  the  Federal  Reserve  Agent 
should  also  be  subject  to  audit  at  frequent  intervals. 

Loose  Leaf  Records.  The  Audit  Division  should  have  charge  of 
all  sheets  for  loose  leaf  records,  furnishing  them  as  required  and 
keeping  an  accurate  record  of  those  in  use  and  in  the  transfer  files. 

Cancelled  Vouchers.  All  cancelled  vouchers  relating  to  the  gen- 
eral accounts,  debit  and  credit  tickets,  etc.,  should  be  promptly  de- 
livered to  the  Audit  Division  for  filing. 

GENERAL. 

We  shall  be  pleased  to  furnish  any  further  information  or 
explanations  which  may  be  necessary  in  connection  with  the 
matters  dealt  with  in  this  report. 

Yours  truly, 

Marwick,  Mitchell,  Peat  & Co. 

Portfolio  III,  containing  forms  relating  particularly  to  the 
keeping  of  credit  records,  the  presentation  of  regular  reports 
by  the  banks,  etc.,  is  also  presented  and  should  be  studied  in 
connection  both  with  Portfolio  I and  Portfolio  II. 


.28 


APPENDIX  II. 

(Accompanied  by  Portfolio  of  Forms  No.  II.) 

From  the  beginning-  of  its  work,  the  Committee  determined 
to  present  a complete  system  of  mechanical  accounting  in  accord 
with  methods  in  use  in  the  largest  banks,  and  with  this  in  view 
Mr.  Stephen  H.  Farnham,  an  expert  on  mechanical  accounting, 
was  invited  to  become  a member  of  the  Committee.  Later  the 
Sub-Committee  on  Mechanical  Accounting  secured  the  co-opera- 
tion of  Mr.  Harry  E.  Ward,  Cashier  of  the  Irving  National  Bank, 
New  York  City,  and  Mr.  Charles  C.  Robinson,  Auditor  of  the 
Irving  National  Bank. 

The  system  of  accounting  to  be  chosen,  and  the  extent  to 
which  machines  are  used  in  it,  will  depend  upon  the  scope  and 
activity  which  the  Reserve  Banks  are  to  have  from  the  begin- 
ning, and,  in  the  event  that  they  are  assigned  large  clearing 
functions,  it  will  necessarily  be  a matter  of  extreme  importance 
in  assuring  the  smooth  working  of  the  system,  the  accurate 
and  prompt  collection  of  items,  and  the  development  of  reports 
and  statistics  comparable  in  character  and  truly  reflecting 
the  internal  conditions  of  each  of  the  several  institutions. 
The  accounting  system  as  subsequently  outlined  may  be  made 
a fundamental  factor  in  providing  the  means  for  a careful  esti- 
mate of  credit  conditions  throughout  the  country,  as  it  provides 
for  a daily  transmission,  if  desired,  of  detailed  reports  to  the 
Federal  Reserve  Board  at  Washington,  in  order  that  that  Board 
may  be  constantly  in  touch  with  the  operations  of  each  Bank, 
and  the  comparative  condition  of  all  the  Banks.  In  this  way 
the  Board  will  be  enabled  to  act  with  full  knowledge  as  to  rates 
of  discount  and  to  advise  the  several  Banks  concerning  the 
lines  of  paper  that  are  outstanding  throughout  the  country. 

In  designing  the  plan,  these  points  have  been  observed: 

(A.)  Particular  care  has  been  taken  to  introduce 
the  most  modern  systems,  using  machinery 
wherever  possible,  thereby  securing  the  ad- 
vantages of  mechanical  accuracy  as  com- 
pared with  the  method  of  maintaining  rec- 
ords by  hand. 

(B. ) The  majority  of  the  forms  have  been  con- 
structed to  carry  their  respective  items 
from  the  time  of  receipt  to  final  dispo- 
sition. There  is  also  a system  of  control 
throughout,  with  the  result  that  their  use 
will  materially  reduce  labor  and  increase 
efficiency. 

(C. ) The  entire  accounting  system  has  purposely 
been  made  elastic,  so  that  it  will  fulfil  the 
needs  of  the  largest  as  well  as  the  smallest 
Federal  Reserve  Bank,  and  as  the  banks 
grow  it  will  not  be  necessary  to  revise  the 
accounting  plan. 

129 


(D. ) There  has  been  constant  recognition  of  tin 
desirability  of  keeping  the  Federal  Reserve 
Board  in  daily  contact  with  the  Federal 
Reserve  Banks. 

( E. ) The  system  is  adapted  for  use  with  any  of  the 
standard  typewriting  and  adding  machines 
now  on  the  market. 

MAIL  TELLER. 

As  there  will  in  all  probability  be  a large  accumulation  of  mail 
from  Member  Banks,  consisting  of  remittances  for  credit,  collec- 
tions, etc.,  between  the  hours  of  2:30  P.  M.  and  8:30  A.  M.,  this 
department  has  been  designed  as  the  first  operating  unit,  looking 
to  the  avoidance  of  congestion  in  the  morning. 

The  work  of  the  Mail  Teller  will  begin,  say  at  midnight,  and 
will  consist  in  handling  incoming  mail  up  to  5 A.  M.,  the  result 
being: 

1 —  Preparation  for  morning  clearance  of  such  items  as  will  be 
payable  through  the  Clearing  House  (Federal  Reserve  or  other- 
wise). 

2 —  Delivery  to  the  Transit  Department  in  one  total  of  such 
items  as  may  have  been  received,  payable  out  of  town. 

3 —  Delivery  to  the  Distributing  Desk  in  one  total  of  such  Cred- 
its and  Debits  as  relate  to  the  accounts  appearing  upon  the  books 
of  the  Federal  Reserve  Bank. 

4 —  Delivery  to  the  Note  Teller  in  one  total  of  such  miscella- 
neous items  not  covered  in  the  three  subdivisions  outlined. 

The  Block  System  will  be  used  in  this,  as  in  all  other  depart- 
ments, the  sectional  proofs  of  the  work  being  accomplished  by 
means  of  blocks,  with  the  result  that  the  ultimate  proof  of  the 
department  will  consist  only  of  interlocking  balances. 

FORM  M.  T.  1. 

This  will  be  the  Block  Sheet  of  the  Department,  to  be  used  as 
previously  outlined. 

FORM  M.  T.  2 -3 -A 

These  vari-colored  slips  to  be  used  in  correctly  routing  the  dif- 
ferent batches  of  Debits  and  Credits  after  they  are  proved  upon 
each  block. 

Form  Nos.  3 and  4,  will  cover  the  majority  of  the  work  leaving 
the  department,  and  consequently  are  imprinted  “Transit  Depart- 
ment” and  “Note  Teller,”  while  form  M.  T.  2,  is  to  be  used  for  such 
miscellaneous  items  as  may  necessarily  be  forwarded  to  other  de- 
partments. 

FORM  M.  T.  5 

This  is  a Proof  Sheet  for  the  department,  the  figures  for  which 
will  be  obtained  from  a recapitulation  of  the  Block  Sheets. 

FORM  M.  T.  6 

This  is  a suggested  envelope  which  will  enclose  items  intended 
for  presentation  to  the  different  Members  of  the  Clearing  House. 


130 


CLEARING  HOUSE  DEPARTMENT 

This  department  will  be  the  successor  of  the  Mail  Teller,  its 
work  consisting-  in  handling'  incoming  mail  received  subsequent  to 
5 A.  M.,  the  plan  of  operation  of  the  two  departments  being  iden- 
tical, except  that  the  supervision  and  proof  of  incoming  exchanges 
from  the  Clearing  House  will  also  be  handled  by  this  department. 

The  forms  will  consist  of  the  following: 

FORM  Cli.  1. 

This  will  be  the  Block  Sheet  for  the  department. 

FORM  CH  2-S-4-5. 

These  vari-colored  slips  will  be  used  in  correctly  routing  the 
batches  of  items  from  each  Block  Sheet,  after  its  proof. 

FORM  CH  6. 

This  is  the  Proof  Sheet  of  the  department,  the  figures  for  which 
will  be  obtained  by  a recapitulation  of  all  the  Blocks. 

FORM  CH  7. 

This  is  a Block  Sheet  to  be  used  in  effecting  the  proof  of  in- 
coming exchanges  from  the  Clearing  House. 

FORM  CH  S. 

This  is  a Proof  Sheet  for  the  assembling  of  an  individual  proof 
of  the  morning  Exchanges  received  from  the  Clearing  House,  the 
figures  being  subsequently  passed  through  the  proof  of  the  Dis- 
tributing Desk. 

FORM  CH  9 

This  is  a suggested  envelope  which  will  enclose  items  intended 
for  presentation  to  the  different  Members  of  the  Clearing  House. 

DISTRIBUTING  DESK 

For  the  concentration  of  figures,  avoidance  of  errors,  facilita- 
tion of  work  in  the  Tellers’  cages,  and  simplicity  of  posting  for  the 
General  Ledger  this  department  has  been  instituted  in  order  that 
the  different  Tellers  after  the  proof  of  each  block  may  route  to  it 
such  items  as  may  have  been  received,  both  Debits  and  Credits, 
effecting  accounts  appearing  upon  the  books  of  the  Federal  Re- 
serve Bank. 

The  advantages  of  the  Distributing  Desk  are  many,  and  it  will 
be  found  of  particular  value  as  to  apparent  over-drafts,  by  the 
quick  concentration  in  the  bookkeepers’  hands  of  such  Debits  and 
Credits  as  may  affect  the  accounts,  but  which  under  ordinary  cir- 
cumstances would  not  reach  the  bookkeeper  until  the  close  of  the 
day’s  business. 

The  Forms  of  the  department  are  as  follows: 

FORM  D D 1 

This  is  a Block  Sheet  to  be  used  in  establishing  sectional  proofs 
of  Debits. 

FORM  D n 2 

■ This  is  a Block  Sheet  to  be  used  in  establishing  sectional  proofs 
of  Credits. 

FORM  D D 3 

This  is  a Proof  Sheet  for  the  department,  the  figures  of  which 
will  be  obtained  from  a recapitulation  of  the  Block  Sheets. 


131 


PAYING  TELLER 


The  principal  duties  of  the  Paying-  Teller  will  be  to  make  such 
cash  disbursements  over  the  counter  as  may  be  necessary,  effect 
the  settlement  of  Clearing  House  balances,  examination  of  checks 
for  correct  signatures,  arrange  for  the  shipment  of  money  to 
Member  Banks,  provide  for  the  forwarding  of  mutilated  currency 
for  redemption  to  the  Treasurer  of  the  United  States  at  Washing- 
ton, and  likewise  provide  for  the  redemption  of  Federal  Reserve 
Notes  with  the  Federal  Reserve  Agent. 

The  Paying  Teller  will  be  responsible  only  for  such  cash  as  may 
be  allotted  to  him,  the  principal  cash  reserves  of  the  Bank  being 
under  the  joint  control  of  other  officers  or  directors. 

The  Forms  of  the  Department  are: 

FORM  PT-1 

This  will  be  used  in  arranging  shipments  of  money  to  Member 
Banks.  Its  explanation  is  as  follows: 

Slip  No.  1 — Notification  to  the  Member  Bank  that  its  account 
has  been  charged  and  that  the  shipment  has  gone  forward. 

Slip  No.  2 — Carbon  copy  of  original  advice,  which  will  be  en- 
closed with  the  shipment  of  money. 

Slip  No.  3 — Acknowledgment  from  Member  Bank  of  receipt  of 
the  shipment. 

Slip  No.  4 — Tracing  slip  to  be  retained  as  a follow-up,  looking 
to  the  receipt  of  the  acknowledgment. 

Slip  No.  5 — Debit  to  Member  Bank’s  Account. 

FORM  PT-2 

This  will  be  used  in  forwarding  mutilated  currency  to  the 
Treasurer  of  the  United  States  at  Washington.  Its  explanation  is 
as  follows: 

Slip  No.  1 — Advice  to  the  Treasurer  of  the  United  States,  de- 
scriptive of  the  forwarding  of  the  currency. 

Slip  No.  2 — Carbon  copy  of  original  advice,  to  accompany  the 
shipment. 

Slip  No.  3 — Debit  to  “Redemption  Account.” 

Slip  No.  4 — Credit  to  “Redemption  Account.” 

All  of  the  above  slips  will  be  made  use  of  upon  the  day  the 
money  is  shipped,  with  the  exception  of  Slip  No.  4,  which  will 
be  retained,  awaiting  the  return  of  the  equivalent  currency  from 
Washington.  The  outstanding  slips  will,  of  course,  prove  to  the 
controlling  account  upon  the  General  Ledger. 

FORM  PT-3 

To  be  used  in  forwarding  mutilated  Federal  Reserve  Notes  to 
the  Federal  Reserve  Agent,  its  explanation  being: 

Slip  No.  1 — Application  to  the  Federal  Reserve  Agent  for  the 
issuance  of  new  currency. 

Slip  No.  2 — Acknowledgment  from  the  Federal  Reserve  Bank  to 
the  Federal  Reserve  Agent  of  receipt  of  the  new  currency. 

Slip  No.  3 — Debit  to  “Federal  Reserve  Notes.” 

Slip  No.  4 — Credit  to  “Federal  Reserve  Notes.” 


132 


Slips  Nos.  1,  2,  and  3 will  be  attached  and  delivered  to  the  Fed- 
eral Reserve  Agent  with  the  mutilated  currency,  Slip  No.  3 being 
provided  upon  its  reverse  side  with  a form  of  acknowledgment 
from  the  Federal  Reserve  Ag'ent  of  the  receipt  of  the  mutilated 
currency.  When  the  new  currency  is  delivered  to  the  Federal  Re- 
serve Bank  it  will  be  accompanied  by  an  acknowledgment  of  its 
receipt  by  the  Federal  Reserve  Bank.  Upon  delivery  of  the  new 
currency  to  the  Bank,  Slip  No.  4 will  be  used  as  a Credit  to  “Fed- 
eral Reserve  Notes.” 

FORM  PT-4 

This  will  be  used  by  the  Federal  Reserve  Bank  in  forwarding 
Federal  Reserve  Notes  for  cancellation  to  the  Federal  Reserve 
Agent,  its  explanation  being: 

Slip  No.  1 — Instructions  to  the  Federal  Reserve  Agent,  as  to 
the  cancellation  of  the  described  Federal  Reserve  Notes. 

Slip  No.  2 — Debit  to  “Federal  Reserve  Notes.” 

As  the  notes  are  delivered  to  the  Federal  Reserve  Agent  they 
will  be  accompanied  by  Slips  Nos.  1 and  2,  Slip  No.  1 being  a record 
of  the  transaction  for  the  Federal  Reserve  Agent,  while  Slip  No. 
2 is  for  use  in  reducing  the  outstanding  Federal  Reserve  Notes, 
provision  having  been  made  upon  its  reverse  side  for  a form  of 
acknowledgment  of  the  receipts  of  the  notes  by  the  Federal  Reserve 
Agent. 

FORM  PT-5 

This  is  a form  to  be  used  in  effecting  the  “Stop  Payment”  ol 
checks. 

FORM  PT-6 

This  will  be  used  when  the  notification  for  stopping  payment 
has  not  been  received  upon  the  form  provided  for  the  purpose. 
FORM  PT-7 

This  is  for  use  in  acknowledging  receipt  of  the  regular  form  of 
“Stop  Payment”  notice. 

FORM  PT-8 

A loose-leaf  record,  upon  which  will  be  inscribed  under  the 
name  of  the  Member  Bank,  a complete  description  of  the  checks 
upon  which  it  is  desired  to  stop  payment. 

FORMS  PT  -9-10-11-12-13 

Vari-colored  slips  to  be  used  in  routing  the  different  batches  of 
items  to  the  several  Departments. 

FORM  PT-l-'t 

Proof  Sheet  for  the  Department,  upon  which  will  be  assembled 
the  total  figures  of  the  day.  Upon  the  reverse  side  of  the  sheet, 
provision  has  been  made  for  the  accumulation  of  the  different 
Debits  and  Credits  to  the  several  Departments. 

FORM  PT-15 

This  will  be  used  for  the  occasional  necessity  of  certifying 
checks  of  Member  Banks,  its  explanation  being: 

Slip  No.  1 — Notification  to  Member  Bank  of  the  fact  that  its 
account  has  been  charged,  covering  the  certification  of  a specific 
check. 


133 


Slip  No.  2 — Debit  to  the  Member  Bank’s  Account. 

Slip  No.  3 — Credit  to  Certified  Checks. 

FORM  FT -16 

When  the  certified  checks  are  returned  to  the  Bank  for  re- 
demption, they  will  pass  through  the  controlling  account  upon 
the  General  Ledger  and  then  be  forwarded  to  the  Auditing  De- 
partment in  order  that  their  control  may  be  in  agreement  with 
the  General  Ledger.  The  Auditing  Department  will  then  affix 
this  form  to  the  checks  and  deliver  them  to  the  Bookkeeping 
Department  to  be  enclosed  with  the  daily  statement. 

This  is  a proposed  sheet  which  will  be  prepared  by  the  Paying 
Teller  each  morning  and  will  be  delivered  to  the  Secretary-Treas- 
urer for  examination,  its  purpose  being  to  place  the  officials  of  the 
Bank  in  touch  with  the  condition  of  the  cash  of  the  Bank. 

RECEIVING  TELLER 

This  Department  will  receive  deposits  from  Member  Banks  lo- 
cated within  the  city  in  which  the  Federal  Reserve  Bank  is  situat- 
ed, and  will  also  account  for  shipments  of  currency  received  from 
other  Federal  Reserve  Banks  and  Member  Banks. 

The  Forms  of  the  Department  are  as  follows: 

FORM  RT-1 

This  is  for  use  in  handling  shipments  of  currency  received  for 
credit  of  Member  Banks,  its  explanation  being: 

Slip  No.  1 — Advice  to  the  Member  Bank  descriptive  of  the  re- 
ceipt of  the  Currency  and  the  amount  placed  to  their  credit. 

Slip  No.  2 — Credit  to  the  Member  Bank’s  Account 
FORMS  RT-2-3-4-5-6 

These  are  vari-colored  slips  to  be  used  in  routing  the  different 
classes  of  items  to  the  several  Departments. 

FORM  RT-1 

A Block  Sheet  for  the  sectional  proof  of  the  day’s  work. 

FORM  RT-8 

This  is  a proof  sheet,  the  figures  for  which  will  be  obtained 
from  a recapitulation  of  the  Block  Sheets. 

NOTE  TELLER. 

The  duties  of  this  Department  will  consist  of  the  presentation 
and  collection  of  notes,  drafts,  and  checks  drawn  upon  non-mem- 
bers of  the  Clearing  House,  all  of  which  are  payable  within  the 
radius  covered  by  the  messengers  of  the  Federal  Reserve  Bank. 

The  runners  or  messengers  will  be  under  the  control  and  form 
a part  of  this  Department. 

The  forms  are  as  follows: 

FORM  NT-1 

This  is  a proposed  Block  Sheet  for  the  proof  of  the  messen- 
gers’ routes,  upon  one  side  of  which  are  listed  the  individual  items 
comprising  the  route  and  upon  the  reverse  side  the  checks,  cur- 
rency, etc.,  which  have  been  received  in  payment.  The  initial 


134 


“N”  is  indicative  of  a cash  item  charged  to  the  Note  Teller  and 
which  has  been  returned  by  the  messenger  unpaid.  The  initial 
“C”  is  indicative  of  collection  items  (not  cash),  which  have  been 
returned  unpaid  by  the  messengers. 

The  total  of  the  items  as  appearing  upon  each  side  of  the  block 
must  be  in  agreement  and  constitute,  as  previously  outlined,  a 
proof  of  the  messengers’  routes. 

FORM  NT-2 

A Block  Sheet  for  the  distribution  to  the  different  Depart- 
ments, of  the  checks,  currency,  etc.,  which  have  been  received 
in  settlement  of  items  charged  to  the  Note  Teller.  A recapitu- 
lation of  these  blocks  constitutes  a proof  of  the  day’s  work. 
FORMS  NT-3-4-5-6- 7 

These  are  vari-colored  slips  to  be  used  in  routing  items  to  the 
different  Departments,  after  they  are  proved  upon  the  Block 
Sheets. 

FORM  NT-S 

This  is  for  use  in  charging  back  and  returning  cash  items, 
which  are  unpaid  after  presentation.  Its  explanation  is  as  follows: 

Slip  No.  1 — Letter  accompanying  the  item. 

Slip  No.  2 — Debit  to  the  Member  Bank. 

Slip  No.  3 — To  be  placed  in  a chronological  file,  awaiting  the 
return  of  the  acknowledgment  postal. 

Slip  No.  4 — A postal  card  to  be  attached  to  the  item  when  it  is 
charged  back  and  which  will  be  dated,  signed,  and  returned  by 
the  Member  Bank  as  an  acknowledgment  of  receipt. 

FORM  NT -9 

In  the  event  of  the  postal  card  as  outlined  in  NT-8  not  being 
regularly  returned,  FORM  NT-9,  being  a postal  tracer,  will  be  used. 
FORM  NT-10 

This  is  a Proof  Sheet  for  the  Department,  the  figures  of  which 
will  be  obtained  from  a recapitulation  of  the  Block  Sheets  as  out- 
lined in  FORM  NT-2. 

TRANSIT  DEPARTMENT. 

The  Transit  Department  should  be  equipped  with  steel  racks 
providing  suitable  compartments  for  each  Member  Bank  of  its 
district,  together  with  eleven  other  compartments,  larger  in  size 
for  the  other  Federal  Reserve  Banks. 

These  compartments  will  be  divided  into  units,  for  the  purpose 
of  evenly  distributing  the  volume  of  business. 

The  handling  and  proof  of  the  Transit  items  will  be  obtained 
in  the  following  manner: 

(a)  Items  received  by  the  different  Departments  will  be  charged 

to  the  Transit  Department  in  batches,  accompanied  by 
slips  designating  the  Teller  forwarding  them  and  the 
amount  of  each  batch. 

(b)  Accumulated  batches  will  be  assorted  to  the  different  units 

listed,  and  proved  under  the  sectional  proof  of  the  block 

system. 

(c)  A recapitulation  of  the  block  sheets  will  constitute  a proof 

of  the  interlocking  balances  with  the  Tellers,  and  pro- 
duce the  figures  to  which  each  unit  must  prove. 


135 


(d)  The  proof  of  each  unit  will  be  obtained  by  adding  together 
the  totals  appearing  upon  the  carbon  copies  of  the 
remittance  letters  in  process  of  being  forwarded. 

The  forms  of  the  Department  are — 

FORM  T-l 

A form  to  be  used  by  Member  Banks  in  their  relations  with 
Federal  Reserve  Banks,  when  forwarding  for  credit  such  items 
as  they  may  receive,  drawn  upon  Member  Banks  located  within 
the  Federal  Reserve  city.  The  top  sheet  will  accompany  the 
checks,  while  the  carbon  will  be  retained  by  the  Member  Banks 
to  be  used  as  a debit  to  their  reserve  account  with  the  Federal 
Reserve  Banks. 

It  will  be  noted  that  this  form,  as  well  as  FORMS  NOS.  T-2-3-4- 
5-G-7-8  and  9,  has  been  equipped  with  a form  of  acknowledgment 
as  well  as  a “follow-up,”  the  acknowledgment  to  be  dated, 
signed,  and  returned  by  the  receiving  bank,  and  the  “follow- 
up” to  be  placed  in  chronological  file  under  the  date  upon  which 
the  acknowledgment  should  be  received — this  will  enable  the 
banks  to  trace  intelligently  any  overdue  cash  letters. 

Attention  is  called  to  the  fact  that  the  reverse  side  of  Sheet 
No.  1 of  FORMS  NOS.  T-l-2-3-4-5-6-7-8  and  9,  is  to  be  carbon- 
ized, consequently  it  will  not  be  necessary  to  place  the  usual 
carbon  paper  between  the  original  and  duplicate  parts  of  the  form. 
FORM  T-2 

To  be  used  by  Member  Banks  in  forwarding  for  credit  such 
items  as  they  may  receive  which  are  drawn  upon 

(a)  Member  Banks  located  within  their  own  district  but  with- 

out the  local  radius  to  be  determined  by  the  Federal 
Reserve  Board. 

(b)  Federal  Reserve  Banks  of  other  districts. 

(c)  Member  Banks  of  other  Federal  Reserve  districts. 

FORM  T-3 

To  be  used  by  Federal  Reserve  Banks  in  their  relations  with 
Member  Banks  located  in  their  own  city,  but  which  because  of 
inaccessibility  may  not  clear  through  the  Clearing  House 
(Federal  Reserve  or  otherwise),  necessitating  the  items  being  for- 
warded to  them  by  mail  for  collection.  Ihe  top  sheet  will  ac- 
company the  checks,  while  the  second  sheet,  or  duplicate,  will 
be  the  debit  to  the  Member  Bank’s  account. 

FORM  T-4 

This  is  identical  with  FORM  T-5,  except  that  it  is  intended 
to  cover  instances  where  there  will  not  be  many  checks  to  forward. 
FORM  T-5 

To  be  used  in  forwarding  items  drawn  upon  Member  Banks 
located  without  the  city  in  which  the  Federal  Reserve  Bank  is 
situated,  the  top  sheet  accompanying  the  checks  and  the  second 
sheet,  or  duplicate,  being  the  debit  to  Member  Bank’s  account. 
FORM  T-6 

This  is  identical  with  FORM  T-5,  except  that  it  is  intended 


136 


to  cover  instances  where  the  number  of  checks  to  be  forwarded 
are  fewer  in  number. 

FORM  T- 7 

For  use  of  the  Federal  Reserve  Banks  in  forwarding  items 
to  each  other,  the  top  sheet  accompanying-  the  checks  while  the 
second  sheet,  or  duplicate,  will  be  a debit  to  “Transit  Account.” 
FORM  T-S 

For  use  of  the  Federal  Reserve  Banks  in  forwarding  Federal 
Reserve  Notes  to  each  other.  The  top  sheet  will  accompany  the 
notes  while  the  duplicate  will  be  a debit  to  “Transit  Account.” 
FORM  T-9 

For  use  of  Federal  Reserve  Banks  in  returning-  to  each  other 
unpaid  cash  items,  the  original  sheet  accompanying  the  items 
while  the  duplicate  sheet  is  a debit  to  “Transit  Account.” 

FORM  T-10 

A claim  ticket  to  be  used  in  adjusting-  discrepancies  in  cash 
letters,  such  as  incorrectness  in  listing,  non-enclosure  of  items,  etc. 
FORM  T-ll 

To  be  used  in  confirming  the  action  of  correspondents,  in  sup- 
plying missing  endorsements. 

FORM  T-12 

A form  of  postal  tracer  to  be  used  in  tracing  overdue  cash 
letters.  The  pink,  or  duplicate,  sheet  will  be  retained  in  a chron- 
ological file,  as  a follow-up,  looking  to  the  receipt  of  a reply  to 
the  tracer. 

FORM  T-13 

For  use  of  Member  Banks  in  returning-  unpaid  cash  items 
to  the  Federal  Reserve  Banks. 

FORMS  T-U-15-16 

Vari-colored  slips  to  be  used  in  routing  batches  of  items  to 
the  different  departments. 

FORM  T-17 

A form  of  block  sheet  for  use  in  establishing  sectional  proofs 
of  the  day’s  work. 

FORM  T-18 

Proof  sheet  of  the  Department,  the  figures  for  which  will  be 
obtained  from  a recapitulation  of  the  block  sheets. 

It  is  quite  possible  that  an  electric  endorsing  machine  can 
be  used  to  good  advantage  in  the  Transit  Department,  and  this 
thought  should  receive  consideration. 

COLLECTION  DEPARTMENT 

The  following  forms  have  been  designed  for  Regional  Banks,  in 
handling  such  items  as  may  be  forwarded  to  them  for  Collection 
only. 

FORM  COLL  1 

This  is  intended  for  notes  payable  within  the  radius  covered  by 
messengers  of  the  Federal  Reserve  Banks.  Its  description  follows: 

Slip  No.  1 — Advice  of  disposition  to  Member  Bank. 


137 


Slip  No.  2 — Credit  to  Member  Bank  (if  paid). 

Slip  No.  3 — Permanent  Record  (to  be  filed  chronologically,  as 
to  day  of  receipt,  under  name  of  Member  Bank). 

Slip  No.  4 — Maturity  Slip,  serving  the  same  purpose  as  the  or- 
dinary “tickler.” 

FORM  COLL  2 

This  is  designed  for  notes  payable  without  the  district  cover- 
ed by  messengers  of  the  Federal  Reserve  Bank,  necessitating  the 
items  being  forwarded  to  corresponding  banks  for  collection.  Its 
explanation  follows: 

Slip  No.  1 — Letter  enclosing  item  to  corresponding  bank. 

Slip  No.  2 — Acknowledgment  of  receipt  from  corresponding 
bank. 

Slip  No.  3 — Maturity  Slip,  to  be  used  in  following  up  returns. 

Slip  No.  4 — Permanent  Record,  to  be  filed  chronologically,  as  to 
day  of  receipt,  under  the  name  of  Member  Bank. 

Slip  No.  5- — Advice  of  disposition  to  Member  Bank. 

Slip  No.  6 — Credit  to  Member  Bank  (if  paid). 

Slip  No.  7 — Debit  to  corresponding  bank  (if  paid). 

FORM  COLL  3 

This  will  cover  drafts  and  special  items  (exclusive  of  Coupons), 
requiring  specific  advice  of  payment  and  which  are  paid  upon  the 
day  of  presentation.  Its  explanation  follows: 

Slip  No.  1 — Advice  of  credit  to  Member  Bank. 

Slip  No.  2 — Credit  to  Member  Bank. 

FORM  COLL 

This  will  be  for  items,  other  than  notes,  which  are  payable  with- 
out the  district  covered  by  messengers  of  the  Federal  Reserve 
Bank.  Its  explanation  follows: 

Slip  No.  1 — Letter  accompanying  item  to  corresponding  bank. 

Slip  No.  2 — Tracing  Slip,  to  be  used  in  following  up  returns. 

Slip  No.  3 — Permanent  Record,  to  be  be  filed  chronologically, 
as  to  day  of  receipt  under  the  name  of  Member  Bank. 

Slip  No.  4 — Advice  of  disposition  to  Member  Bank. 

Slip  No.  5 — Credit  to  Member  Bank  (if  paid). 

Slip  No.  G — Debit  to  Corresponding  Bank  (if  paid). 

FORM  COLL  5 

This  is  for  use  in  returning  unpaid  items,  payable  within  the 
district  covered  by  messengers  of  the  Federal  Reserve  Bank.  Its 
explanation  follows: 

Slip  No.  1 — Letter  to  Member  Bank  returning  the  item  unpaid. 

Slip  No.  2 — Carbon  copy  for  files. 

FORM  COLL  6 

Postal  acknowledgment  of  the  receipt  of  items  entered  for  col- 
lection. 

FORM  COLL  7 

This  has  been  constructed  for  items  (documentary  or  otherwise) 
requiring  special  care  and  which  will  be  held  indefinitely  awaiting 
payment.  Its  explanation  follows: 

Slip  No.  1 — Acknowledgment  of  receipt  to  Member  Bank. 


138 


Slip  No.  2 — Advice  of  credit  to  Member  Bank. 

Slip  No.  3 — Credit  to  Member  Bank. 

It  will  be  noted  that  on  slip  No.  3,  of  the  above  form,  space  has 
been  allotted  for  notations  descriptive  of  the  progress  being  made 
looking'  to  the  ultimate  disposition  of  the  items. 

FORM  COLL  8 

This  is  a postal  form  of  tracer,  to  be  used  in  tracing  the  dispo- 
sition of  items  forwarded  to  Corresponding  Banks  for  collection. 
The  pink  slip  attached,  is  a carbon  of  the  postal  and  will  be  filed 
chronologically  under  the  approximate  day  upon  which  a reply 
to  the  Tracer  should  be  received. 

FORM  COLL  9 

This  form  is  to  be  used  in  requesting  the  return  of  items,  for- 
warded to  Corresponding  Banks  for  collection.  The  yellow  sheet 
attached  is  a carbon  copy  and  record  of  the  original. 

FORM  COLL  10 

This  is  intended  to  reduce  letter-writing  to  a minimum,  the 
form  being  designed  as  a departmental  advice  to  Member  Banks 
concerning  their  collections. 

FORM  COLL  11 

This  is  the  Block  Sheet  for  the  Department,  and  will  be  used  in 
accordance  with  the  Block  System  of  proof  throughout  the  Bank. 
FORMS  COLL  12  and  13 

These  are  slips  to  be  used  in  routing  debits  and  credits  to  the 
different  departments  and  upon  which  will  be  inscribed  the  total 
amount  of  each  batch.  Form  No.  12,  is  for  Credits  and  form  No. 
13  is  for  Debits.  The  difference  in  color  being  indicative  of  the 
different  classes. 

FORM  COLL  Ht 

This  is  a Proof  Sheet  for  the  Department  and  upon  which  will 
be  inscribed  a recapitulation  of  the  day’s  work,  obtained  from  the 
Block  Sheets. 

LOANS  AND  DISCOUNTS 

As  re-discounting  for  Member  Banks  and  the  proposed  pur- 
chase of  Domestic  Bills  of  Exchange,  etc.,  in  the  open  market,  may 
be  extensive,  it  is  thought  , that  the  application  of  forms  to  ma- 
chinery will  materially  facilitate  the  work  of  the  Department,  and 
with  this  in  view  the  following  plan  has  been  designed: 
UNEARNED  DISCOUNT 

It  is  suggested  that  the  Federal  Reserve  Banks,  instead  of  fol- 
lowing the  usual  practice  of  crediting  to  Current  Earnings  such 
discount  as  may  have  been  collected,  adopt  the  plan  of  placing 
the  discount  in  an  account  to  be  known  as  “Unearned  Discount,” 
and  each  day  this  balance  will  be  charged  with  the  actual  dis- 
count earned  and  the  amount  thus  obtained  credited  to  Current 
Earnings  under  the  subdivision  of  “Discount.” 

This  would  mean  that  the  statement  of  the  Bank  would  al- 
ways appear  upon  a liquidating  basis,  and  from  an  analytical  point 
of  view  would  materially  assist  in  showing  the  true  percentage 
of  earnings  to  Loanable  Funds. 


139 


LIABILITY 

While  the  usual  method  of  ascertaining  the  amount  of  liability 
is  from  detailed  statistics  compiled  in  book  records,  it  will  be  noted 
that  such  entries  in  the  Liability  Ledgers  cause  a duplication  of 
work,  entailing  unnecessary  labor  in  keeping  them  in  a state  of 
efficiency,  while,  under  the  proposed  plan,  full  details  concerning 
liability  are  obtained  at  the  same  time  that  the  bookkeeping  en- 
tries, advices,  etc.,  are  typewritten  by  the  stenographer. 

For  the  purpose,  however,  of  ready  availability  of  figures,  con- 
cerning the  total  liability  of  concerns,  under  the  classifications  of 
“Payer”  and  “Endorser,”  a skeleton  Ledger  in  loose-leaf  form  will 
be  maintained,  the  entries  in  which  will  be  posted  in  total  only, 
and  the  entire  liability  of  which  must  be  in  proof  with  the  con- 
trolling balances  on  the  General  Ledger. 

As  the  Federal  Reserve  Banks  will  be  principally  interested  in 
the  credit  standing  of  the  Payer  and  the  last  Endorser,  and  as 
it  is  very  desirable  to  maintain  only  such  figures  of  liability  as 
may  be  subject  to  proof,  it  is  suggested  that  the  liability  records 
of  the  Federal  Reserve  Banks  consist  of  Payer  and  Endorser,  in- 
stead of  Drawer,  Acceptor,  and  Endorser,  as  the  establishment 
of  liability  figures  under  the  latter  three  classifications  would  not 
be  possible  of  proof  and  would  result  in  a lack  of  confidence  as  to 
the  accuracy  of  such  figures. 

In  the  event,  however,  of  it  being  considered  necessary  to  main- 
tain liability  figures  other  than  that  of  Payer  and  the  last  En- 
dorser, this  may  be  done  by  inserting  additional  sheets  in  the 
skeleton  loose-leaf  Liability  Ledger,  the  postings  in  tne  accounts 
to  be  executed  in  red  ink,  which  would  be  indicative  of  tne  fact 
that  such  figures  are  not  to  be  included  in  the  proof  of  liability. 

It  is  the  purpose  of  this  plan  to  provide  the  Federal  Reserve 
Board  at  Washington  with  a continuous  record,  in  detail,  of  all 
notes  or  bills  of  exchange  discounted  for  Member  Banks  or  pur- 
chased in  the  open  market — these  continuous  records  to  be  execut- 
ed at  the  same  time  the  forms  are  written,  without  any  additional 
labor  upon  the  part  of  the  Federal  Reserve  Banks,  such  continuous 
records  being  mailed  to  the  Federal  Reserve  Board  at  the  conclu- 
sion of  each  day’s  business,  and  which  will  be  used  by  the  Credit 
Bureau  at  Washington  for  the  accumulation  of  such  credit  in- 
formation as  they  may  desire.  This  will  enable  the  Federal  Re- 
serve Board  at  Washington  to  be  in  close  touch  with  that  por- 
tion of  the  business  of  the  Federal  Reserve  Banks  and  place  it  in  a 
position  to  accumulate,  automatically,  from  twelve  different 
sources,  most  valuable  statistics,  concerning  the  credit  standing  of 
the  borrowers  from  the  Federal  Reserve  System. 

In  FORMS  BD-2-3-5  and  6 it  will  be  seen  that  two  of  the  last 
vari-colored  slips  have  been  allotted  for  liabilities,  the  thought 
being  that  the  slips  in  question,  after  being  posted  in  total  in  the 
skeleton  Liability  Ledger,  will  be  filed  in  a steel  cabinet,  under 
an  alphabetical  arrangement  of  the  names  of  the  debtors. 

The  result  of  this  would  be  an  accumulation  into  one  compart- 
ment, properly  indexed,  of  the  entire  concentrated  liability  (except 


foreign  exchange)  of  any  concern,  the  controlling  figures  of  which 
would  be  in  the  skeleton  Liability  Ledger,  which,  as  previously 
outlined,  would  be  posted  in  totals  only. 

As  fast  as  the  liabilities,  represented  by  the  slips,  are  liquidat- 
ed, either  at  or  before  maturity,  the  slips  are  taken  from  the  steel 
cabinet  and  filed  in  usual  course  by  the  Filing  Department,  so 
that  the  retention  of  the  slips  in  this  way  furnishes  a permanent 
record  which  may  be  consulted  at  any  time. 

It  will  be  observed  that  this  method  will  leave  in  the  Liabil- 
ity files,  only  “live”  matter  of  a current  nature,  consequently  they 
will  not  be  glutted  by  a mass  of  records  relating  to  past  liabilities, 
while  the  easy  maintenance  of  the  subsidiary  skeleton  Liability 
Ledger  will  furnish  immediate  information,  in  total,  as  to  the  past 
and  present  liability  of  any  concern. 

TICKLER 

The  last  slip  of  the  forms  bears  the  designation  of  “Maturity 
Slip”  and  its  use  will  be  that  of  providing  the  Department  with 
the  information  usually  contained  in  a book  “tickler.”  The  slips 
will  be  filed  chronologically  under  the  Maturity  of  the  Notes,  with 
the  result  that  the  Maturities  of  each  day  are  accumulated  in  one 
compartment,  properly  indexed,  and  in  the  right-hand  corner  of 
which  the  total  amount  maturing  is  immediately  available. 

As  the  day  of  Maturity  is  reached,  the  City  slips  are  taken  from 
the  Maturity  File  and  checked  to  the  City  Notes  delivered  to  the 
Note  Teller,  likewise  the  Country  slips  are  checked  to  the  forms 
covering  Country  Notes  in  possession  of  the  Collection  Department. 
It  will,  therefore,  be  seen  that  the  slips  have  served  the  purpose 
of  the  usual  book  “tickler”  in  every  possible  way,  both  as  to  avail- 
able information  and  the  checking  of  missorted  items. 

The  Maturity  slips  then  will  be  used  to  reduce  the  liability  of 
the  different  concerns  in  the  skeleton  Liability  Ledger,  and  to  re- 
tire from  the  liability  files  the  Matured  liabilities,  keeping,  as  out- 
lined before,  only  “live”  records  in  the  liability  files. 

STATISTICS 

Maturities  falling  due  within  thirty,  sixty,  or  ninety  days  and 
after,  can  easily  be  obtained  from  the  Discount  Clerk,  who  will 
compute  the  figures  from  the  totals  appearing  in  the  upper  right- 
hand  corners  of  the  Indexes,  in  the  Maturity  File. 

Attention  is  called  to  the  fact  that  it  is  not  practical  to  carry 
the  above  statistics  upon  the  General  Ledger,  inasmuch  as  daily 
adjustments  would  be  obligatory.  It  is,  however,  feasible  to  have 
the  Maturities  of  the  items  show  under  the  classifications  of  the 
different  months  of  the  year,  such  as  the  Maturites  falling  due  in 
January,  February,  etc. 

All  of  the  forms  have  been  provided  with  space  which  may 
be  used  to  either  place,  automatically,  upon  the  General  Ledger  the 
month  of  Maturity,  or  the  industry,  etc.,  affected. 

CONTINUOUS  RECORDS 

As  outlined  before,  it  is  suggested  that  the  record  of  all  Notes 
Discounted  for  or  loans  made  to  Member  Banks,  or  paper  pur* 


141 


chased  in  the  open  market,  be  transcribed  upon  what  is  known  as 
a “Continuous  Record,”  this  record  furnishing-  an  exact  description 
of  the  Note  and  being  written  in  the  same  operation  that  the  man- 
ifolding entries  are  being  prepared  by  the  stenographer. 

These  “Continuous  Records”  will  be  made  use  of  in  advising  the 
Federal  Reserve  Board  at  Washington  and  in  the  interrelations 
between  the  Federal  Reserve  Agents  and  the  Federal  Reserve 
Banks. 

ACCOUNTS 

For  the  purpose  of  distinguishing  between  the  classes  of  Bills 
Discounted,  the  following  titles  have  been  assigned: 

Bills  Discounted — Customers 

Bills  Discounted — Bought 

FORM  BD-1 

For  use  of  Member  Banks,  in  empowering  proper  officials 
to  re-discount  with  the  Federal  Reserve  Banks. 

FORM  BD-2 

This  is  intended  to  cover  Notes  Discounted  for  Member  Banks, 
which  are  payable  within  a radius  covered  by  the  Federal  Reserve 
Bank’s  messengers.  Its  explanation  is  as  follows: 

Slip  No.  1— Debit  to  Bills  Discounted-Customers. 

Slip  No.  2 — Credit  to  Bills  Discounted-Customers. 

Slip  No.  3 — Advice  of  Credit  to  Member  Bank. 

Slip  No.  4 — Credit  to  Member  Bank’s  Account. 

Slip  No.  5 — Credit  to  Unearned  Discount. 

Slip  No.  6 — Endorser’s  Liability. 

Slip  No.  7 — Payer’s  Liability. 

Slip  No.  8 — Maturity  Slip. 

All  of  the  slips  comprising  the  Form  are  made  use  of  upon  the 
day  of  Discount,  either  in  bookkeeping  entries,  advices,  or  for  the 
establishment  of  Liability,  with  the  exception  of  Slip  No.  2,  being 
a Credit  to  Bills  Discounted-Customers,  which  remains  attached  to 
the  Note  and  is  filed  away  with  it  awaiting  Maturity. 

FORM  BD-3 

This  is  identical  with  FORM  BD-2,  with  the  exception  that  it  is 
designed  to  cover  Notes  Discounted  for  Member  Banks,  which 
would  be  payable  without  the  radius  covered  by  messengers  of  the 
Federal  Reserve  Banks,  consequently  it  would  be  necessary  to  for- 
ward them  to  other  institutions  for  Collection.  The  explanation 
of  the  Form  follows: 

Slip  No.  1 — Debit  to  Bills  Discounted-Customers. 

Slip  No.  2 — Letter  to  Corresponding  Bank  enclosing  the  item 
for  Collection. 

Slip  No.  3 — Acknowledgment  from  Corresponding  Bank  as  to 
the  receipt  of  the  Note. 

Slip  No.  4 — Credit  to  Bills  Discounted-Customers. 

Slip  No.  5 — Debit  to  the  Collecting  Bank. 

Slip  No.  6 — Advice  of  Credit  for  the  Member  Bank. 

Slip  No.  7 — Credit  to  the  Member  Bank. 


142 


Slip  No.  8 — Credit  to  Unearned  Discount. 

Slip  No.  9 — Endorser’s  Liability. 

Slip  No.  10 — Payer’s  Liability. 

Slip  No.  11 — Maturity  Slip. 

As  to  Slips  Nos.  2-3-4  and  5,  Slips  Nos.  2 and  3 would  be  at- 
tached to  the  Note  when  forwarded  to  the  Corresponding  Bank  for 
Collection,  while  Slips  4 and  5 would  be  retained  by  the  Collection 
Department  of  the  Federal  Reserve  Bank  and  filed  by  it  in  a 
Maturity  File  under  the  Due  Date  of  the  item,  at  which  time  they 
would  be  proved  to  the  controlling  slips  in  the  Discount  Depart- 
ment, then  being  separated,  would  form  the  Credit  to  Bills  Dis- 
counted-Customers  and  a Debit  to  the  Collecting  Bank. 

It  will  be  noted  that  Slips  2-3-4  and  5 were  typewritten  when  the 
item  was  first  handled  by  the  Discount  Department,  consequent- 
ly it  was  delivered  to  the  Collection  Department  with  the -neces- 
sary forms  to  carry  it  to  its  final  disposition,  with  the  exception 
of  the  day  of  forwarding,  together  with  the  name  of  the  Collecting 
Institution,  both  of  which  will  be  transcribed  on  the  form  by  the 
Collection  Department. 

As  the  Country  Notes  will  be  delivered  to  the  Collection  Depart- 
ment the  day  following  their  discount,  provision  has  been  made 
upon  the  reverse  side  of  the  Maturity  Slips  for  an  acknowledg- 
ment of  the  receipt  of  the  items  by  the  Collection  Department. 
FORM  BD-Jf 

This  is  a continuous  record,  in  loose-leaf  form,  forwarding  to 
the  Federal  Reserve  Board  at  Washington,  exact  details  of  the 
Bills  Discounted  for  Member  Banks. 

FORM  BD-5 

This  is  similar  to  FORM  BD-2,  with  the  exception  that  it  is 
intended  to  cover  Bills  Discounted-Bought,  being  purchases  made 
in  the  open  market,  instead  of  items  Discounted  for  Member  Banks, 
and  which  are  payable  within  the  district  covered  by  Messengers 
of  the  Federal  Reserve  Banks. 

FORM  BD-6 

This  is  similar  to  FORM  BD-3,  with  the  exception  that  it  has 
been  designed  to  cover  Country  Notes  purchased  in  the  open  mar- 
ket, rather  than  Discounted  for  Member  Banks. 

FORM  BO -7 

This  is  identical  with  FORM  BD-4,  except  that  it  is  designed  to 
advise  the  Federal  Reserve  Board  at  Washington  of  the  exact  de- 
scription of  Bills  Purchased  in  the  open  market,  rather  than  Dis- 
counted for  Member  Banks. 

FORM  BD-8 

This  is  a draft  of  an  Alphabetical  Index,  to  be  used  in  separating 
the  Liability  of  Debtors. 

That  portion  of  the  Index  descriptive  of  the  name  of  the  con- 
cern, will  be  modelled  after  the  usual  form  of  indexes,  permitting 
the  changing  of  names  at  leisure. 

FORM  BD-9 

This  is  a draft  of  an  Index  to  be  used  in  apportioning  the  Brok- 


ers’  Slips  in  the  Liability  Files,  the  purpose  of  placing  such  Brokers’ 
Slips  in  the  Liability  Files  being  merely  to  enable  a proof  of  lia- 
bility to  be  established,  as  of  course  there  will  be  no  liability  at- 
tached to  the  Brokers  unless  they  be  compelled  to  endorse  the  com- 
mercial paper  sold  to  the  Federal  Reserve  Banks. 

FORM  BD-10 

A Chronological  Index,  to  be  used  in  apportioning  the  Maturity 
Slips  under  the  Maturity  of  the  Notes,  the  upper  right-hand  corner 
being  glazed  with  a coating  of  celluloid,  or  something  of  a similar 
nature. 

FORM  BD-11 

Designed  for  Collateral  Loans  supported  by  Government  Bonds, 
Warehouse  Receipts  for  Merchandise,  etc.  Its  explanation  follows: 

Slip  No.  1 — Debit  to  Collateral  Loans. 

Slip  No.  2 — Credit  to  Collateral  Loans. 

Slip  No.  3 — Advice  to  Member  Bank. 

Slip  No.  4 — Credit  to  Member  Bank. 

Slip  No.  5 — Credit  Unearned  Discount. 

Slip  No.  6 — Endorser’s  Liability. 

Slip  No.  7 — Payer’s  Liability. 

Slip  No.  S — Maturity  Slip. 

While  it  is  assumed  the  Federal  Reserve  Banks  will  in  addition 
to  making  collateral  loans  supported  by  United  States  Government 
Bonds,  be  obliged  to  make  other  loans  supported  by  collateral, 
such  as  warehouse  receipts,  etc.,  covering  merchandise,  it  is 
thought  that  loans  of  this  character  should  be  somewhat  re- 
stricted and,  in  every  case,  bear  a Maturity. 

It  may  be  well  to  note  in  addition  to  the  above  that  there 
will  be  instances  in  which  the  Federal  Reserve  Banks  will  redis- 
count items  supported  by  collateral,  so  that  the  accounts  “Collat- 
eral Loans  secured  by  United  States  Government  Bonds”  and  “Col- 
lateral Loans — Merchandise”  would  not  be  indicative  of  all  the 
collateral  loans  made. 

FORM  BO-12 

A continuous  record,  in  loose-leaf  form,  forwarding  to  the  Fed- 
eral Reserve  Board  at  Washington,  exact  details  of  the  Collateral 
Loans  made  each  day. 

FORM  BD-13 

This  is  a card  record  for  Collateral  Loans  supported  by  Govern- 
ment Bonds,  the  card  being  descriptive  of  the  Collateral  and  al- 
lowing space  for  substitutions,  etc. 

FORM  BD-14 

This  is  a card  record  of  Collateral  Loans  supported  by  Ware- 
house Receipts  for  Merchandise,  etc.,  the  card  being  descriptive  of 
the  Collateral  and  allowing  for  payments  covering  withdrawals. 
FORM  BO-15 

For  use  in  Re-Discounting  until  other  Federal  Reserve  Banks 
and  supports  a controlling  balance  upon  the  Liability  side  of  the 
General  Ledger  known  as  “Re-Discounts  with  other  Federal  Re- 
serve Banks.”  Its  explanation  follows: 


144 


Slip  No.  1 — Credit  to  “Re-Discounts  with  other  Federal  Reserve 
Banks.” 

Slip  No.  2 — Debit  to  the  Discounting  Federal  Reserve  Bank. 

Slip  No.  3 — Letter  enclosing  item  to  Discounting  Federal  Re- 
serve Bank. 

Slip  No.  4 — Acknowledgment  of  receipt  from  Discounting  Fed- 
eral Reserve  Bank. 

Slip  No.  5 — Maturity  Slip. 

Slip  No.  6 — Debit  to  “Re-Discounts  with  other  Federal  Reserve 
Banks.” 

Slip  No.  7 — Credit  to  Bills  Discounted.  . . . 

All  of  the  above  slips  are  made  use  of  upon  the  day  the  items 
are  forwarded  for  Re-Discount,  with  the  exception  of  Slips  Nos.  5, 
ti,  and  7,  being,  respectively,  a Maturity  Slip,  and  the  subsequent 
liquidating  entries.  Slip  No.  5,  descriptive  of  the  Maturity,  will  be 
filed  chronologically  in  a separate  Maturity  File  covering  items  “Re- 
Discounted  with  other  Federal  Reserve  Banks,”  so  that  the  total  of 
the  slips  in  this  file  will  at  all  times  prove  the  controlling  balance 
upon  the  General  Ledger.  Slips  Nos.  6 and  7 will  be  substituted  in 
place  of  the  Note  and  held  awaiting  Maturity,  at  which  time  they 
will  be  separated  and  the  debit  to  “Re-Discounts  with  other  Fed- 
eral Reserve  Banks”  will  be  charged  to  the  Note  Teller  and  the 
credit  to  Bills  Discounted  forwarded  to  the  General  Ledger. 

The  original  Maturity  Slip  in  the  regular  Maturity  File  need  not 
be  disturbed  in  this  instance,  as  the  reduction  of  Bills  Discounted 
does  not  take  place  until  the  Maturity  of  the  items,  consequently 
it  is  necessary  that  they  be  left  where  originally  placed,  viz.,  the 
regular  Maturity  File,  in  order  that  it  will  be  in  agreement  with 
the  controlling  balances. 

An  adjustment  of  Unearned  Discount  would,  of  course,  be  neces- 
sary upon  receipt  of  the  advice  of  credit. 

FORM  BD-16 

This  form  is  to  be  used  in  handling  items  re-discounted  for 
other  Federal  Reserve  Banks,  and  which  are  payable  within  the 
district  covered  by  the  Messengers  of  the  Federal  Reserve  Bank 
discounting  the  items. 

It  provides  a Controlling  Balance  upon  the  “Resources”  side  of 
the  General  Ledger,  to  be  known  as  “Re-Discounts  for  other  Fed- 
eral Reserve  Banks.”  An  explanation  of  the  Form  follows: 

Slip  No.  1 — Debit  to  “Re-Discounts  for  other  Federal  Reserve 
Banks.” 

Slip  No.  2 — Credit  to  “Re-Discounts  for  other  Federal  Reserve 
Banks.” 

Slip  No.  3 — Advice  of  Credit  to  Federal  Reserve  Bank  Of  . . . 

Slip  No.  4 — Credit  of  Federal  Reserve  Bank  Of  . . . 

Slip  No.  5— Credit  to  Unearned  Discount. 

Slip  No.  6 — Liability  Slip  of  Federal  Reserve  Bank  Of  . . . 

Slip  No.  7 — Maturity  Slip. 

FORM  BD-17 

This  is  identical  with  FORM  BD-16,  with  the  exception  that  it 


145 


is  intended  to  cover  Notes  re-discounted  for  other  Federal  Reserve 
Banks,  which  are  payable  without  the  district  covered  by  Messen- 
gers of  the  Federal  Reserve  Bank.  Its  explanation  follows: 

Slip  No.  1 — Debit  to  ‘‘Re-Discounts  for  other  Federal  Reserve 
Banks.” 

Slip  No.  2 — Letter  forwarding-  the  Item  for  Collection. 

Slip  No.  3 — Acknowledgment  of  its  Receipt. 

Slip  No.  4 — Credit  to  “Re-Discounts  for  other  Federal  Peserve 
Banks.” 

Slip  No.  5. — Debit  to  Collecting  Bank. 

Slip  No.  6 — Advice  of  Credit  to  the  Federal  Reserve  Bank 
Of.  . . . 

Slip  No.  7 — Credit  to  the  Federal  Reserve  Bank  Of  . . . 

Slip  No.  8 — Credit  to  Unearned  Discount. 

Slip  No.  9 — Liability  of  Federal  Reserve  Bank  Of  . . . 

Slip  No.  10 — Maturity  Slip. 

FORM  BD-18 

A continuous  loose-leaf  record  to  be  forwarded  to  the  Federal 
Reserve  Board  at  Washington,  D.  C.,  by  the  Federal  Reserve  Bank 
discounting  items  for  another  Federal  Reserve  Bank. 

FORM  BD-19 

A sample  loose-leaf  sheet,  to  be  used  in  effecting  the  daily  ac- 
crual of  Earned  Discount,  the  resulting  figures  to  be  used  in  a 
Debit  to  “Unearned  Discount”  and  a Credit  to  “Discount.” 

FEDERAL  RESERVE  NOTES 

It  is  proposed  that  when  a Federal  Reserve  Bank  wishes  to  is- 
sue Federal  Reserve  Notes,  it  will  reduce  Bills  Discounted  and 
Debit  a Controlling  Balance  in  its  resources  to  be  known  as  “With 
Federal  Reserve  Agent  to  secure  Federal  Reserve  Notes.”  After 
the  Federal  Reserve  Notes  have  been  received  from  the  Federal 
Reserve  Agent,  which  it  is  assumed  will  be  the  same  day,  the 
Federal  Reserve  Notes  will  be  placed  in  the  assets  of  the  Bank, 
their  offset  being  a Credit  to  “Federal  Reserve  Notes.” 

As  the  hypothecated  Notes  mature,  it  will  be  incumbent  upon 
the  Federal  Reserve  Banks  to  either  notify  the  Federal  Reserve 
Agent  of  their  desire  to  cancel  the  equivalent  of  Federal  Reserve 
Notes,  or,  as  is  most  likely,  exercise  the  option  of  substituting  Notes 
with  more  distant  maturities  than  those  already  hypothecated. 
FORM  BO-20 

This  has  been  designed  to  cover  both  the  hypothecation  and 
possible  substitution  of  discounted  Notes,  held  by  the  Federal  Re- 
serve Agent  to  secure  Federal  Reserve  Notes.  Its  explanation  fol- 
lows: 

Slip  No.  1 — Debit  “With  Federal  Reserve  Agent  to  secure  Fed- 
eral Reserve  Notes.” 

Slip  No.  2 — Credit  to  “Federal  Reserve  Notes.” 

Slip  No.  3 — Maturity  Slip. 

Slip  No.  4 — Credit  “With  Federal  Reserve  Agent  to  secure  Fed- 
eral Reserve  Notes." 

Slip  No.  5 — Credit  to  “Bills  Discounted.”  . . . 


146 


In  hypothecating-  the  Notes  with  the  Federal  Reserve  Agent  it 
does  not  appear  advisable  to  retire  the  liability  slips  typewritten 
at  the  time  of  the  first  handling  of  the  Note,  as  the  hypothecation 
does  not  in  any  way  affect  liabilities  and  as  the  Notes  will  even- 
tually be  returned  to  the  Federal  Reserve  Banks  for  collection,  but 
it  will  be  obligatory,  however,  to  remove  the  Maturity  Slip  from 
the  regular  Maturity  File,  stamp  it  “With  Federal  Reserve  Agent 
to  secure  Federal  Reserve  Notes,”  and  then  forward  it  to  the  Fil- 
ing Department  to  be  filed  in  the  permanent  record. 

In  substitution  of  the  Maturity  Slip  described  in  the  foregoing 
paragraph,  slip  No.  3 of  FORM  BD-20  will  be  used  and  filed  chron- 
ologically in  a separate  Maturity  File  covering  the  outstanding 
Notes  with  the  Federal  Reserve  Agent,  as  in  this  way  the  Bank  will 
be  in  a position  to  know  at  any  time  the  exact  Notes  held  by  the 
Federal  Reserve  Agent  and  also  will  be  placed  in  position  to  see 
upon  what  days  subsitution  of  Notes  will  be  required. 

FORM  BD -21 

A continuous  record,  in  triplicate,  will  be  obtained  from  FORM 
BD-20  and  delivered  with  the  discounts  to  the  Federal  Reserve 
Agent  by  the  Bank.  The  First  sheet  of  the  Continuous  Record 
will  serve  as  an  application  of  the  Federal  Reserve  Bank  to  the 
Federal  Reserve  Agent,  while  the  Duplicate  will  be  the  receipt  of 
the  Federal  Reserve  Agent  to  the  Federal  Reserve  Bank,  acknowl- 
edging the  Collateral  as  security,  and  the  Triplicate  sheet  will  be 
the  advice  of  the  Federal  Reserve  Agent  to  the  Federal  Reserve 
Board  at  Washington,  descriptive  of  the  issuance  of  Federal  Reserve 
Notes  and  the  supporting  collateral. 

FORM  BD-22 

This  is  a Continuous  Record,  in  triplicate,  covering  the  substi- 
tution of  Collateral  by  the  Federal  Reserve  Bank  -with  the  Feder- 
al Reserve  Agent,  upon  the  reverse  side  of  each  of  which  are  listed 
the  Notes  which  it  is  desired  to  retire,  while  upon  the  face  of  the 
sheets  will  be  listed  the  proffered  Collateral  in  substitution.  The 
first  sheet  of  the  Continuous  Record  will  be  the  application  of  the 
Federal  Reserve  Bank  to  the  Federal  Reserve  Agent,  the  Dupli- 
cate sheet  will  be  the  receipt  of  the  Federal  Reserve  Agent  to  the 
Federal  Reserve  Bank  covering  the  acknowledgment  of  the  Col- 
lateral received  in  substitution,  while  the  Triplicate  will  be  the  Fed- 
eral Reserve  Agent’s  advice  to  the  Federal  Reserve  Board  at  Wash- 
ington of  the  substitution  of  Collateral. 

FORM  BD-23 

This  is  a draft  for  the  proposed  skeleton  loose-leaf  Liability 
Ledger,  which  will  be  descriptive  of  the  total  indebtedness  of  con- 
cerns under  the  classification  of  “Payer”  and  “Endorser.” 

FORM  BD-24 

This  is  a Block  Sheet  to  be  used  in  establishing  sectional  proofs 
of  the  day’s  work. 

,rOR31S  BD-25-26. 

Slips  to  be  used  in  routing  the  different  batches  of  Debits  and 
Credits  to  the  General  Ledger,  Note  Teller,  and  Distributing  De- 
partment. 


147 


FORM  BD-27 

A proof  sheet  for  the  Department,  the  figures  for  which  will  be 
obtained  through  a recapitulation  of  the  Block  Sheets. 

FORM  BD-28 

This  is  a triplicate  record,  which  will  be  used  in  the  release 
of  collateral  by  the  Federal  Reserve  Agent  when  Federal  Reserve 
Notes  have  been  tendered  to  him  for  cancellation,  its  explanation 
being : 

Sheet  No.  1 — Application  to  the  Federal  Reserve  Agent  for  the 
release  of  the  Collateral. 

Sheet  No.  2 — Permanent  record  for  the  Federal  Reserve  Agent. 

Sheet  No.  3 — Advice  to  the  Federal  Reserve  Board  of  the  re- 
lease of  the  Collateral  by  the  Federal  Reserve  Agent. 

Sheet  No.  1 will  serve  as  a permanent  record  for  the  Federal 
Reserve  Bank,  while  sheet  No.  2 will  serve  the  same  purpose  for 
the  Federal  Reserve  Agent  and,  in  addition,  place  him  in  a posi- 
tion to  prove  the  amount  of  notes  being  held  as  collateral;  like- 
wise sheet  No.  3 will  enable  the  Federal  Reserve  Board  to  prove 
the  correctness  of  “Re-Discounts  to  Secure  Federal  Reserve  Notes,” 
as  it  appears  upon  the  daily  statement  of  the  Federal  Reserve 
Agent. 

BOOKKEEPING  DEPARTMENT 

This  Department  will  have  charge  of  the  maintenance  of  the 
accounts  of  the  depositors  of  the  Federal  Reserve  Banks. 

The  usual  method  of  handling  such  accounts  is  by  means  of 
bound  ledgers,  supported  by  monthly  statements,  descriptive  of 
the  different  debits  and  credits  entering  the  accounts,  while  under 
the  proposed  plan  the  bookkeeper  will  obtain,  by  machinery,  a 
daily  statement  for  the  depositor,  at  the  same  time  that  he  is  pre- 
paring his  loose-leaf  ledger  sheet,  indicative  of  the  day’s  transac- 
tions. 

If  not  too  expensive,  it  is  suggested  that  the  cancelled  checks 
of  each  account  be  returned  with  the  daily  statement,  inasmuch 
as  it  would  place  them  in  the  possession  of  the  depositors  at  the 
earliest  possible  moment,  and  would  do  away  with  the  necessity 
of  filing  and,  likewise,  the  maintenance  of  steel  cabinets  in  which 
they  must  be  assorted. 

It  will  be  observed  that  no  provision  has  been  made  upon  the 
daily  statement  for  a “Key,”  as  this  will  not  be  necessary  under 
the  general  system  as  outlined  in  the  Bank — that  of  giving  specific 
advices  covering  the  different  debits  and  credits  entering  the  ac- 
counts. 

The  Forms  of  the  Department  will  be: 

FORM  B-l 

This  is  a combined  ledger  and  statement  sheet  designed  for 
machinery,  but  which  with  a slight  modification  of  ruling  could 
be  adapted  to  hand  work. 

The  first  duty  of  the  bookkeeper  in  the  morning  will  be  to 
transcribe  upon  the  top  sheet  of  the  Form,  the  balance  brought 
forward  from  the  day  prior,  after  which  he  will  deliver  the  pre- 


148 


vious  day’s  ledger  sheets  to  the  Filing  Department  to  be  filed 
chronologically  in  a Transfer  Binder  under  the  name  and  style  of 
the  depositor’s  account.  He  will  then  prove  the  total  of  the  as- 
sembled balances  to  his  controlling-  account  on  the  General  Ledger. 

It  may  be  well  to  note  at  this  point,  that  the  daily  statement 
to  the  Member  Banks  will  not  contain  the  balance  appearing-  to 
their  credit  at  the  close  of  business  each  day,  but  instead  will 
simply  be  a statement  giving-  the  balance  of  the  day  prior,  together 
with  the  debits  and  credits  entering-  the  account,  inasmuch  as  it 
would  hardly  be  advisable  to  forward  a balance,  the  accuracy  of 
which  would  not  be  proved  until  the  following  morning.  This, 
however,  is  a matter  of  detail,  which  will  best  be  determined  after 
the  first  few  days  of  operation,  as  it  is  quite  possible  the  nature 
of  the  work  will  enable  all  the  Tellers  to  forward  their  figures 
to  the  General  Ledger  in  time  to  have  the  controlling-  balances  in 
proof  for  the  bookkeepers  before  the  conclusion  of  each  day. 

After  the  previous  day’s  balances  have  been  transcribed,  the 
routine  of  the  bookkeeper’s  work  will  depend  largely  upon  the  time 
of  receipt  of  the  morning  mail,  exchanges,  and  other  departmental 
entries. 

FORM  B-2 

To  be  used  in  reporting  overdrafts  to  the  proper  official. 

FORM  B-3 

A form  of  card  index,  upon  which  will  be  accumulated  the  over- 
drafts appearing  in  any  particular  account. 

FORM  B-4 

A loose-leaf  record,  upon  which  will  be  inscribed,  under  the 
name  of  the  Member  Bank,  a complete  description  of  the  checks 
upon  which  it  is  desired  to  stop  payment. 

FORM  B-5 

This  is  a form,  in  quadruplicate,  which  will  be  used  in  handling 
“Transit  Account,”  its  explanation  being: 

Page  No.  1 — Loose-leaf  ledger  sheet  of  “Transit  Account”  to 
be  retained  as  a permanent  record  by  the  Federal  Reserve  Bank. 

Page  No.  2 — Loose-leaf  ledger  sheet  of  “Transit  Account”  for 
the  Federal  Reserve  Agent,  to  be  retained  by  him  as  a permanent 
record. 

Page  No.  3 — Advice  from  Federal  Reserve  Agent  to  the  Secre- 
tary of  the  Treasury,  which  will  be  signed  by  the  Agent  after  veri- 
fication, and  which  will  be  the  authority  to  the  Secretary  of  the 
Treasury  to  execute  the  debits  and  credits  in  the  gold  reserve 
balances  of  the  different  Federal  Reserve  Banks. 

Page  No.  4 — Statement  of  the  account  to  be  forwarded  by  the 
Federal  Reserve  Bank  to  the  Secretary  of  the  Treasury. 

Pages  2 and  3 will  be  delivered  to  the  Federal  Reserve  Agent, 
page  2,  as  previously  outlined,  being  his  permanent  record,  and 
fage  3,  his  advice  to  the  Secretary.  Page  4 has  been  designed 
to  afford  the  Secretary  the  opportunity  of  checking  the  correct- 
ness of  the  Federal  Reserve  Agent’s  figures  and  also  to  remove 
the  possibility  of  confusion  in  the  event  of  the  Federal  Reserve 
Agent’s  advice  going  astray  in  the  mails. 

149 


GENERAL  BOOKS 

It  is  proposed  that  the  General  Ledger,  Daily  Statement  Book. 
Profit  and  Loss  Ledger,  and  other  ledger  records  which  vitally  af- 
fect the  Bank,  be  segregated  from  the  regular  Bookkeeping  De- 
partment, in  order  that  the  controlling  figures  of  the  Bank  be  un- 
der close  observation  and  not  open  to  the  casual  examination  of 
clerks. 

The  General  Ledger  bookkeeper  will  also  prepare  any  state- 
ments of  condition  (exclusive  of  statistics)  which  may  be  required 
by  the  Directors  or  Officials  of  the  Bank,  Federal  Reserve  Agent, 
or  Federal  Reserve  Board. 

Sample  pages  of  the  principal  books  which  he  will  maintain 
have  been  drafted,  and  are  explained  as  follows: 

GB-1 

Proposed  sheet  of  a bound  book  to  be  styled  a “General  Ledger” 
and  which  will  contain  the  controlling  accounts  of  the  Bank. 

GB-2 

Proposed  loose-leaf  sheet  for  the  "Daily  Statement  Book,”  the 
figures  for  which  will  be  obtained  from  a concentration  of  Gen- 
eral Ledger  accounts. 

This  book  will  be  proved  and  delivered  to  the  President  or 
Secretary-Treasurer  of  the  Fedex-al  Reserve  Bank  each  morning 
not  later  than  9:30  A.  M.,  in  order  that  they  may  know  the  con- 
dition of  the  Bank  prior  to  the  opening  of  business. 

It  will  be  noted  that  the  leaves  of  the  book  are  in  duplicate, 
the  plan  being  that  the  duplicate  statement  of  the  condition  of  the 
Bank  will  be  delivered  to  the  Federal  Reserve  Agent  for  examina- 
tion and  that  he  in  turn  will  forward  it,  the  same  day,  to  the 
Federal  Reserve  Board  at  Washington  for  their  information. 

On  Friday  of  each  week,  if  it  is  desired,  the  figures  may  be 
transmitted  by  telegraph  to  the  Federal  Reserve  Board  for  the 
compilation  at  their  end,  of  the  concentrated  figures  of  the  twelve 
different  banks. 

GB-3 

Sample  sheet  of  a bound  book  to  be  known  as  “Profit  and  Loss 
Ledger.” 

This  will  contain  the  descriptive  record  of  Profit  and  Loss  ac- 
count and  such  other  accounts  as  may  be  deemed  advisable. 
GB-'t 

To  be  used  in  preparing  a Difference  record  of  the  several 
departments,  and  will  be  placed  upon  the  desk  of  the  Secretary- 
Treasurer  on  Monday  morning  of  each  week. 

GB-5 

A Ledger  sheet  for  a subsidiary  record  giving  the  details  of 
the  Short  and  Over-Differences  of  the  several  departments,  and 
must  be  in  agreement  with  the  Difference  Account  upon  the 
General  Ledger. 

GB-C, 

This  form  has  been  designed  for  use  of  the  Directors  of  the 
Federal  Reserve  Bank,  at  their  regular  weekly  meetings,  the  plan 


150 


being  that  the  form  will  be  manifolded  so  that  each  Director  will 
receive  a copy. 

GB-7 

This  is  an  Expense  Ledger  which  will  be  posted  daily  and  must 
be  in  agreement  with  the  General  Ledger.  It  will  be  noted  that 
it  has  been  prepared  with  the  thought  of  showing  every  item  of 
Expense,  although,  of  course,  conditions  will  arise  which  may 
necessitate  modifications. 

ACCOUNTING  DEPARTMENT 

This  Department  will  handle  the  transfer  of  funds;  redeem 
unpaid  cash  items  which  have  been  cleared  through  the  Clearing- 
House;  issue  Letters  of  Advice;  prepare  for  official  signature  ex- 
pense vouchers,  and  checks  drawn  upon  other  Federal  Reserve 
Banks,  and  arrange  for  the  depositing  of  funds  for  the  credit  of 
the  Five  Per  Cent  Fund  of  Member  Banks. 

It  likewise  will  be  entrusted  with  the  custody  of  contracts  and 
will  prepare  such  statistics  of  earnings  and  expenses  as  may  be 
desired. 

It  will  also  handle  the  analysis  of  accounts,  under  whatever 
method  may  be  determined. 

The  forms  of  the  Department  are: 

FORM  AC-1 

This  will  be  used  in  transferring  funds  of  Member  Banks  through 
other  Federal  Reserve  Banks,  its  explanation  being; 

Top  Slip,  Page  1 — Advice  to  Federal  Reserve  Bank,  requesting 
the  transfer  to  be  made. 

Slip  2,  Page  1 — Advice  to  Member  Bank  that  their  account  has 
been  charged  and  the  transfer  arranged. 

Top  Slip,  Page  2 — Credit  to  Federal  Reserve  Bank  of  

Slip  2,  Page  2 — Debit  to  Member  Bank’s  Account. 

FORM  AC -2 

This  is  identical  with  FORM  AC-1,  with  the  exception  that  it 
is  intended  to  cover  a telegraphic  transfer  of  funds,  its  explana- 
tion being-; 

Top  Slip,  Page  1 — Advice  to  Federal  Reserve  Bank,  requesting 
the  transfer  to  be  made. 

Slip  2,  Page  1 — Advice  to  Member  Bank,  descriptive  of  the 
charge  and  informing-  them  that  the  transfer  has  received  atten- 
tion. 

Top  Slip,  Page  2 — Credit  to  Federal  Reserve  Bank  of 

Slip  2,  Page  2 — Debit  to  Member  Bank’s  Account. 

FORM  AC -3 

For  use  in  making  transfers  from  one  account  to  another,  both 
of  which  keep  balances  with  the  Federal  Reserve  Bank,  its  explana- 
tion being: 

Top  Slip,  Page  1 — Advice  to  Member  Bank,  requesting  the  trans- 
fer. 

Slip  2,  Page  1 — Advice  to  the  Member  Bank  whose  account  will 
be  credited. 


151 


Top  Slip,  Page  2 — Debit  to  the  Member  Bank,  requesting  the 
transfer. 

Slip  2,  Page  2 — Credit  to  the  Member  Bank  whose  account  is 
to  be  credited. 

FORM  AC-4 

This  will  cover  the  depositing  of  funds  over  the  counter,  for 
credit  of  Member  Banks’  Accounts,  its  explanation  being: 

Slip  No.  1 — Letter  of  advice  to  Member  Bank. 

Slip  No.  2 — A duplicate  of  the  above,  which  will  be  tendered 
as  a receipt  to  the  Bank  or  individual  depositing  the  funds. 

Slip  No.  3 — Credit  to  the  Member  Bank’s  Account. 

Slip  No.  4 — Auditor’s  Checking  Slip. 

FORM  AC-5 

Intended  to  cover  the  receipt  of  instructions  from  Member 
Banks  to  deposit  funds  with  other  banking  institutions  located  in 
the  same  city  in  which  the  Federal  Preserve  Bank  is  situated,  its 
explanation  being: 

Slip  No.  1 — Advice  to  the  Member  Bank  that  their  instructions 
have  received  attention  and  also  giving  the  amount  charged  to 
their  account. 

Slip  No.  2 — Accompanied  by  a check  of  the  Federal  Reserve 
Bank,  this  slip  will  serve  the  purpose  of  a letter  of  instructions  to 
the  institution  receiving  the  funds. 

Slip  No.  3 — Debit  to  Member  Bank’s  Account. 

FORM  AC-6 

This  will  be  used  in  arranging  deposits  with  the  Treasurer  of 
the  United  States  for  the  credit  of  the  Five  Per  Cent  Fund  of 
Member  Banks,  its  explanation  being: 

Slip  No.  1 — Advice  to  Member  Bank  of  the  amount  deposited. 

Slip  No.  2 — Debit  to  Member  Bank’s  Account. 

FORM  AC-7 

A sample  check  to  be  used  in  redeeming  unpaid  items  which 
have  been  cleared  through  the  Clearing  House: 

No.  1 — Form  of  proposed  check. 

No.  2 — Credit  to  “Returned  Items.” 

FORM  AC-8 

A proposed  check  to  be  used  in  drawing  upon  other  Federal 
Reserve  Banks,  its  explanation  being: 

No.  1 — Form  of  check,  together  with  Auditor’s  stub. 

No.  2 — Credit  to  the  account  of  the  Federal  Reserve  Bank  upon 
whom  the  check  is  drawn. 

FORM  AC-9 

A proposed  form  of  expense  voucher,  which  would  be  descriptive 
of  the  particular  invoice  intended  to  be  covered,  its  explanation 
being: 

No.  1 — Form  of  check,  to  which  is  attached  a statement  of  ac- 
count. 

No.  2 — Credit  to  “Expense  Checks”  and  Debit  to  “Provision  for 
Disbursements.” 


152 


In  this  connection,  it  may  be  suggested  that  a daily  charge  to 
Expense  with  a corresponding  credit  to  “Provision  for  Disburse- 
ments,” sufficient  to  cover  the  average  expense  of  the  Bank,  would 
tend  to  indicate  more  clearly  the  actual  current  earnings. 

If  it  is  determined  to  debit  Expense  only  at  the  time  of  actual 
disbursement,  then,  of  course,  the  debit  ticket  in  this  instance 
would  be  labelled  “Expense”  instead  of  “Provision  for  Disburse- 
ments.” 

FORM  AC-10 

Proposed  form  of  envelope,  which  is  intended  to  enclose  such 
contracts  as  may  be  entrusted  to  the  Department. 

It  will  be  noted  that  the  face  of  the  envelope  provides  full  par- 
ticulars concerning  the  contract,  dates  of  payment,  and  various 
other  details. 

FORM  AC-11 

A tentative  form  of  Analysis,  which  could  only  be  made 
use  of  when  the  actual  conditions  surrounding  the  accounts  can 
be  determined,  and,  likewise,  after  the  base  of  operative  expense 
has  been  established.  It  has  been  tendered  simply  for  the  pur- 
pose of  guidance  when  the  time  arrives  for  its  completion. 

FORM  AC-12 

Block  Sheet  for  the  Department,  to  be  used  in  establishing  sec- 
tional proofs. 

FORMS  AC-13-11,-15-16 

Vari-colored  slips  to  be  used  in  routing  the  different  batches 
to  the  several  departments. 

FORM  AC-11 

A Proof  Sheet,  upon  which  will  be  assembled  the  figures  ob- 
tained from  a recapitulation  of  the  Block  Sheets. 

FORM  AC-18 

This  is  a form  which  will  be  prepared  and  delivered  to  the 
different  departments,  in  order  that  they  may  be  in  touch 
with  the  expense  of  their  respective  department. 

SECURITIES  DEPARTMENT. 

As  this  Department  will  have  charge  of  the  purchase,  sale, 
and  custody  of  such  securities  as  will  be  classified  under  the 
General  Ledger  account  known  as  “Investments,”  it  is  suggested 
that  the  manager  be  an  officer  of  the  Bank. 

The  Department  will  also  have  charge  of  the  purchase  and 
sale  of  securities  for  the  account  of  Member  Banks,  and  in  the 
event  of  the  Federal  Reserve  Banks  permitting  Member  Banks 
to  deposit  securities  with  them  for  safekeeping,  they  will  have 
charge  of  such  Custodies. 

The  preparation  of  such  statistics  as  may  be  required  con- 
cerning the  status  of  the  different  classes  of  investments,  -will 
also  be  entrusted  to  the  Department. 

The  Forms  are — - 


153 


FORM  8-1 

This  will  be  used  in  purchasing-  securities  for  account  of  Fed- 
eral Reserve  Banks,  its  explanation  being — 

Slip  No.  1 — Debit  to  Investments. 

Slip  No.  2 — Debit  to  Interest  Accrued  Rec-Inv. 

FORM  8-2 

This  is  a continuous  record  for  the  Federal  Reserve  Board 
at  Washington,  which  will  be  written  at  the  same  time  the 
above  form  is  executed,  and  which  will  be  forwarded  to  the 
Board  with  the  thought  of  placing  it  in  a position  to  know,  with 
the  least  possible  delay,  what  investments  have  been  made  by  the 
Federal  Reserve  Banks. 

FORM  8-3 

This  is  a loose-leaf  book  which  will  be  used  in  maintaining  a 
descriptive  balance  of  the  different  classes  of  securities  on  hand, 
and  will  be  in  agreement  with  the  General  Ledger  at  all  times. 
Upon  the  reverse  side  of  the  sheet  provision  has  been  made  for 
the  listing  of  bond  numbers. 

FORM  8-4 

This  is  a sample  page  of  a bound  book  which  will  be  used  to 
record  purchase  and  sale  of  securities  for  account  of  Member 
Banks. 

FORM  8-5 

Furnishes  a summary  of  the  condition  of  the  investments, 
which  will  be  made  to  the  Board  of  Directors  of  the  Federal 
Reserve  Bank  each  week. 

FORM  8-6 

A sample  loose-leaf  sheet  to  be  used  in  effecting  the  daily 
accrual  of  interest,  the  resulting  figures  to  be  used  as  a debit 
to  “Interest  Accrued  Receivable-Investments,”  and  a credit  to 
“Interest-Investments.” 

FORM  8-7 

In  the  event  of  the  Federal  Reserve  Banks  holding  securities 
in  safe  deposit  for  account  of  Member  Banks,  this  form  will  be 
used,  and  is  designed  to  fully  describe  such  Custodies,  provision 
having  been  made  for  a nominal  balance  based  upon  par  value 
and  also  for  the  date  and  other  details,  etc.,  of  their  delivery. 

Before  filing-  the  form,  all  indices,  except  those  covering  the 
months  when  interest  payments  are  to  be  made,  should  be  re- 
moved, so  that  at  a glance  it  may  be  seen  what  interest  pay- 
ments are  due  in  any  month. 

In  order  that  a proof  of  the  Custodies  be  possible,  it  is  sug- 
gested that  a controlling  balance  be  placed  upon  the  General 
Ledger  which  will  in  no  way  affect  the  assets  or  liabilities  of 
the  Banks,  such  as,  on  the  debit  side,  “Custodies,”  and,  on  the 
credit  side,  “Custodies  due  Correspondents.” 

Forms  have  not  been  drafted  covering  the  handling  of  cou- 
pons, inasmuch  as  it  is  assumed  the  Federal  Reserve  Banks  will 
not  burden  themselves  with  their  collection. 


154 


FOREIGN  DEPARTMENT 


In  general  explanation  of  the  following-  forms,  it  is  suggested 
that  they  have  been  constructed  along  two  distinct  lines,  viz.: 

No.  1 — That  it  will  be  the  purpose  of  Branch  Banks  in  the 
original  handling  of  items  to  so  manifold  their  entries  that  the 
Regional  Banks  will  be  obliged  to  do  the  least  possible  work. 

No.  2 — That  the  Regional  Banks  only  will  maintain  balances 
abroad  and,  as  a consequence,  any  foreign  exchange  transactions 
originating  with  Branch  Banks,  will  be  for  account  of  their  Re- 
gional Banks. 

FORM  FX-1 

Intended  for  use  of  Regional  Banks,  when  forwarding  Cash 
items  for  credit,  such  items  being  drawn  in  the  currencies  of  their 
respective  countries  at  ten  days’  sight  and  under,  together  with 
such  long  items  as  may  be  forwarded  for  immediate  discount. 

It  will  be  noted  in  this  form,  as  well  as  subsequent  FORMS  NOS. 
2,  3,  4,  5,  and  6,  that  provision  has  been  made  for  a double-ac- 
cumulating typewriter  adding  machine,  whereby  at  the  completion 
of  the  listing  of  the  different  items,  a total  is  readily  obtainable 
both  in  foreign  currencies  and  dollars.  It  may  also  be  added  that 
this  necessitates  a machine  with  Sterling  equipment. 

The  first  page  of  Form  No.  1 will  accompany  the  original 
drafts  and  documents.  The  second  page  will  be  forwarded  with 
the  duplicate  drafts  and  documents.  The  third,  or  first  Liability 
Sheet,  is  for  use  of  the  Liability  Clerk  in  the  Regional  Bank.  The 
fourth,  or  second  Liability  Sheet  is  to  be  forwarded  to  the  Federal 
Resei've  Board  at  Washington  for  the  accumulation  of  their  credit 
record.  The  fifth  serves  as  Remittance  Register  as  well  as  a Debit 
to  the  Foreign  Bank  to  whom  the  items  have  been  sent. 

It  will  be  noted  that  the  plan  of  a Remittance  Register  will 
give  full  particulars  as  to  the  entry,  tenor,  and  amount  of  the 
bills,  and  at  the  same  time  assemble  them  in  totals  so  that  the 
bookkeeper  attached  to  the  department  is  materially  assisted  in 
the  correct  postings  of  the  different  accounts.  It  might  alsb  be 
suggested  that  the  clerk  detailed  for  checking  the  correctness  of 
discounts,  value  dates,  etc.,  has  all  particulars  before  him. 

Attention  is  called  to  the  fact  that  provision  has  been  made 
in  the  last  sheet  for  a “follow-up”  system  looking  to  the  prompt 
acknowledgment  of  the  cash  letters,  the  covering  receipts  of  which 
have  already  been  attached  to  the  original  and  duplicate  letters 
forwarding  the  items  abroad. 

FORM  FX-2 

This  has  been  constructed  identically  with  FORM  FX-1,  with 
the  exception  that  it  has  been  designed  to  cover  the  forwarding 
of  exchange  to  a Branch  or  a Correspondent  of  the  institution 
abroad,  providing,  as  will  be  noted,  a simultaneous  advice  to 
the  Regional  Bank’s  correspondent.  An  example  of  this  would  be 
the  forwarding  of  exchange  to  the  Dresdner  Bank  in  Hamburg  for 
account  of  Dresdner  Bank,  Berlin,  for  Credit  of  the  Federal  Re- 


155 


serve  Bank  in  Chicago.  The  pages  of  the  form  will  be  used  as 
follows: 

Page  1 — Letter  accompanying  original  drafts  and  documents 
abroad. 

Page  2 — Letter  accompanying  duplicate  drafts  and  documents 
abroad. 

Page  3 — Notification  of  the  forwarding  of  the  items  to  the  for- 
eign bank  with  whom  the  checking  balance  is  maintained. 

Page  4 — Liability  Sheet  for  use  of  the  Regional  Bank. 

Page  5 — Liability  Sheet  to  be  forwarded  to  the  Federal  Reserve 
Board  at  Washington. 

Page  6 — Sheet  for  Remittance  Register. 

FORM  FX-3 

This  is  also  for  use  of  Regional  Banks  and  intended  to  cover 
the  handling  of  Australian  Exchange  when  forwarded  to  the  place 
of  payment  for  collection,  and  at  the  same  time  for  a realization 
of  the  proceeds  through  negotiation  at  London.  Explanation  of 
its  pages  follow,  viz.: 

Page  1 — Letter  accompanying  the  original  drafts  and  documents 
to  Australia. 

Page  2 — Letter  enclosing  seconds  of  Exchange  to  London,  look- 
ing to  the  negotiation  of  the  items. 

Page  3 — Liability  Sheet  for  use  of  the  Regional  Bank. 

Page  4 — Liability  Sheet  to  be  forwarded  to  the  Federal  Reserve 
Board  at  Washington. 

Page  5 — Sheet  for  Remittance  Register. 

FORM  FX-h 

This  is  identical  with  FORM  FX-1,  being  intended  to  cover 
short  items  drawn  at  ten  days’  sight  and  under,  with  the  excep- 
tion that  it  is  designed  for  the  forwarding  by  Branch  Banks  of 
exchange  for  account  of  Regional  Banks  and  includes  a notifica- 
tion to  the  Regional  Bank  of  the  forwarding  of  the  items. 

FORM  FX-5 

This  is  similar  to  FORM  FX-2,  covering  the  same  purpose,  with 
the  exception  that  it  includes  a notification  of  the  forwarding  of 
the  items  abroad  to  the  Regional  Bank. 

FORM  FX-6 

This  will  cover  the  same  ground  as  FORM  FX-3,  except  that 
it  includes  a notification  to  the  Regional  Bank  of  the  forwarding 
of  the  Australian  Exchange. 

Concerning  FORMS  FX-4-5-G,  it  will  be  necessary  for  the  Re- 
gional Banks  to  execute  entries  at  their  end  upon  receipt  of  the 
notification  from  the  Branch  Banks,  who  will  mail  the  following 
day  the  Remittance  Register  sheets,  to  be  placed  in  the  Regional 
Bank’s  Binder,  awaiting  the  acknowledgment  of  Credit  from  the 
Banks  abroad. 

FORM  FX-1 

For  the  purpose  of  maintaining  a controlling  balance  upon  such 
long  items  as  may  be  purchased  and  which  will  be  held  without 
discount  to  maturity,  it  is  proposed  to  establish  an  account  upon 
the  General  Ledger  to  be  known  as  “Unmatured  Foreign  Bills.” 


156 


This  form  is  intended  to  cover  these  bills  when  forwarded  by 
a Federal  Reserve  Bank  direct  to  a correspondent  abroad  with 
whom  it  keeps  a checking'  balance. 

Page  1 — Letter  accompanying  the  original  draft  and  documents 
abroad. 

Page  2 — Letter  accompanying  the  duplicate  draft  and  docu- 
ments abroad. 

Page  3 — Serves  as  an  acknowledgment  of  receipt  and  provides 
for  a “follow-up.” 

Page  4 — Is  an  advice  of  Credit  to  customer. 

Page  5 — Is  a Credit  to  the  customer’s  account. 

Page  6 — Is  a Debit  to  “Unmatured  Foreign  Bills.” 

Page  7 — Is  a Credit  to  “Unmatured  Foreign  Bills.” 

Page  8 — Is  a Debit  to  “Due  from  Foreign  Banks.” 

It  will  be  noted  that  the  entire  record  and  bookkeeping  entries 
have  been  executed  when  first  handling  the  bill.  Pages  7 and  8, 
being  attached  to  one  another,  are  filed  in  a chronological  manner, 
reflecting  the  maturity  abroad  of  the  item,  consequently  the  bills 
are  charged  to  the  Foreign  Banks  at  the  approximate  due  date, 
thereby  keeping  our  books  more  closely  in  touch  with  the  bal- 
ances abroad.  It  is  provided,  of  course,  that  non-payment  of 
the  items  will  be  cabled  promptly.  This  resume  also  applies  to 
FORMS  FX-8-10-11. 

This  is  identical  with  the  above  form,  with  the  exception  that 
it  is  designed  to  cover  long  bills  forwarded  to  Branches  or  Cor- 
respondents of  the  Federal  Reserve  Bank’s  correspondent  abroad. 
Its  explanation  follows: 

Page  1 — Letter  accompanying  the  original  draft  and  documents 
abroad. 

Page  2 — Letter  accompanying  the  duplicate  draft  and  documents 
abroad. 

Page  3 — A notification  to  the  Regional  Bank’s  correspondent 
that  the  item  has  been  forwarded  to  one  of  its  Branches  or  Corre- 
spondents. 

Page  4 — Serves  as  an  acknowledgment  of  receipt  and  provides 
for  a “follow-up.” 

Page  5 — Advice  of  Credit  to  customer. 

Page  6 — Credit  to  customer’s  account. 

Page  7 — Debit  to  “Unmatured  Foreign  Bills.” 

Page  8 — Credit  to  “Unmatured  Foreign  Bills.” 

Page  9 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-9 

This  will  cover  short  items  drawn  at  ten  days’  sight  and  under, 
in  the  following  classifications,  viz. : 

No.  1 — When  payable  and  forwarded  to  places  where  no  re- 
lations have  been  established. 

No.  2 — When  the  items  are  drawn  in  currencies  other  than 
the  currency  of  the  countries  in  which  they  are  payable. 

This  class  of  items  is  quite  apt  to  be  very  troublesome  in 
handling,  usually  being  drawn  upon  distant  points,  and  for  the  pur- 


157 


pose  of  control  it  is  suggested  that  they  be  grouped  under  a Gen- 
eral Ledger  Account,  to  be  known  as  “Foreign  Collection  Banks,” 
and  it  is  for  this  account  that  FORM  FX-9  has  been  constructed. 
An  explanation  of  the  form  follows: 

Page  1 — Accompanies  the  original  draft  and  documents  abroad. 
Page  2 — Accompanies  duplicate  draft  and  documents  abroad. 
Page  3 — Serves  as  an  acknowledgment  of  receipt  and  provides 
for  a “follow-up.” 

Page  4 — An  advice  of  credit  to  the  Customer. 

Page  5 — Credit  to  Customer’s  account. 

Page  6 — A Debit  to  “Foreign  Collection  Banks.” 

Page  7 — Credit  to  “Foreign  Collection  Banks.” 

Page  8 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-10 

For  long  bills  purchased  by  a Branch  Bank  and  forwarded  to 
a direct  connection  for  account  of  the  Regional  Bank  maintaining 
the  balance  abroad. 

It  will  be  noted  in  the  following  explanation  of  the  form  that 
the  record  of  the  Regional  Bank  as  well  as  the  Member  Bank  has 
been  made  at  one  writing,  viz.: 

Page  1 — Letter  accompanying  the  original  draft  and  documents 
abroad. 

Page  2 — Letter  accompanying  the  duplicate  draft  and  documents 
abroad. 

Page  3 — Provides  for  an  acknowledgment  and  “follow-up.” 
Page  4 — Advice  of  Credit  for  Branch  Bank’s  customer. 

Page  5 — Credit  to  Branch  Bank’s  customer. 

Page  6 — Debit  to  “Unmatured  Foreign  Bills.” 

Page  7 — Debit  to  the  Regional  Bank  for  whose  account  the 
item  is  handled  abroad. 

Page  8 — Credit  to  “Unmatured  Foreign  Bills.” 

Page  9 — Notification  to  Regional  Bank  of  the  forwarding  of 
the  Bill. 

Page  10 — Advice  of  Credit  from  the  Regional  to  the  Branch 
Bank. 

Page  11 — Credit  to  the  Branch  Bank. 

Page  12 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-11 

This  is  for  long  bills  purchased  by  Branch  Banks  and  handled 
as  outlined  above,  when  the  items  are  forwarded  to  a Branch 
or  a correspondent  of  the  banking  connection  abroad.  Its  ex- 
planation follows: 

Page  1 — Letter  accompanying  the  original  draft  and  documents 
abroad. 

Page  2 — Letter  accompanying  the  duplicate  draft  and  documents 
abroad. 

Page  3 — Letter  of  notification  to  the  foreign  bank  for  whose 
account  the  item  will  be  handled. 

Page  4 — Serves  as  an  acknowledgment  and  a “follow-up.” 
Page  5 — Advice  to  the  Branch  Bank’s  customer. 


158 


Page  6 — Credit  to  the  Branch  Bank’s  customer. 

Page  7 — Debit  to  “Unmatured  Foreign  Bills.” 

Page  8 — Debit  to  the  Regional  Bank  in  whose  account  the 
item  will  be  credited  when  paid. 

Page  9 — Credit  to  “Unmatured  Foreign  Bills.” 

Page  10 — Letter  of  notification  from  the  Branch  to  the  Re- 
gional Bank  of  the  forwarding  of  the  item. 

Page  11 — Advice  of  credit  to  the  Branch  Bank. 

Page  12 — Credit  to  the  Branch  Bank. 

Page  13 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX12 

This  is  designed  for  items  covered  by  FORM  FX-9,  except  in 
this  case  they  will  be  purchased  by  a Branch  Bank  and  be  handled 
in  accordance  with  the  thought  outlined  in  FORMS  FX-10  and  11. 
Its  explanation  follows: 

Page  1 — Letter  accompanying  the  original  draft  and  documents 
abroad. 

Page  2 — Letter  accompanying  the  duplicate  draft  and  documents 
abroad. 

Page  3 — Serves  as  an  acknowledgment  and  “follow-up.” 

Page  4 — Advice  of  credit  to  the  Branch  Bank’s  customer. 

Page  5 — Credit  to  Branch  Bank’s  Customer. 

Page  6 — Debit  to  “Foreign  Collection  Banks.” 

Page  7 — Debit  to  the  Regional  Bank. 

Page  8 — Credit  to  “Foreign  Collection  Banks.” 

Page  9 — Letter  of  notification  to  the  Regional  Bank  of  the  for- 
warding of  the  item. 

Page  10 — Advice  of  credit  to  the  Branch  Bank. 

Page  11 — Credit  to  the  Branch  Bank. 

Page  12 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-13 

This  will  be  a continuous  record  for  items  covered  by  FORMS 
FX-7-8  and  9,  the  original  of  which  will  go  to  the  Liability  clerk  of 
the  Regional  Bank,  while  the  duplicate  will  be  mailed  to  the  Fed- 
eral Reserve  Board  at  Washington. 

FORM  FX-14 

This  will  be  a continuous  record  covering  FORMS  FX-10-11 
and  12,  the  original  of  the  form  being  used  by  the  Liability  Clerk 
of  the  Branch  Bank,  while  the  duplicate  will  be  forwarded  to  the 
Federal  Reserve  Board  at  Washington. 

FORM  FX-15 

This  will  serve  as  an  advice  of  credit  to  the  Member  Banks 
covering  such  items  as  might  be  bought  by  the  Regional  Banks 
and  which  will  be  forwarded  abroad  on  FORMS  FX-1-2  and  3.  The 
attached  duplicate  will  be  a credit  to  the  Member  Bank’s  account. 
FORM  FX-16 

As  only  certain  individuals  in  the  Foreign  Department  will  be 
authorized  to  quote  rates,  this  form  has  been  devised  for  the  pur- 
pose of  supplying  the  clerks  who  will  receive  and  deliver  exchange, 
with  authenticated  rates,  so  that  there  will  be  no  confusion  in- 
cidental to  prompt  handling. 


159 


FORM  FX-17 

This  is  a daily  balance  sheet  of  the  Department,  which  will 
be  prepared  by  the  bookkeeper  and  delivered  to  the  head  of  the 
Department,  daily,  in  order  that  he  may  be  in  close  touch  with 
the  condition  of  balances  abroad,  without  the  necessity  of  ex- 
amining- the  Foreign  Ledger.  It  is  understood,  of  course,  that  in 
the  left-hand  column  the  names  of  the  correspondents  abroad  will 
be  printed. 

FORM  FX-18 

This  form  will  serve  the  purpose  of  recording  special  cable 
words  not  covered  in  the  codes,  and  which  may  be  required  as 
a notification  of  prompt  payment  or  non-payment. 

FORM  FX-19 

This  form  consists  of  a Debit  and  Credit  Ticket  to  be  used  in 
the  transfer  of  funds  from  one  Foreign  account  to  another,  prin- 
cipally because  of  cable  transfers  and  arbitrage  operations. 

FORM  FX-20 

This  form  serves  as  a confirmation  covering  the  purchase  of 
cable  transfers  from  institutions,  through  their  brokers. 

FORM  FX-21 

The  Foreign  Department  may  require  for  counter  use,  as  well 
as  for  the  use  of  Member  Banks,  a supply  of  drafts  and  the  form 
tendered  herewith  is  to  supply  that  want. 

FORM  FX-22 

In  arranging  for  postal  remittances  ordered  by  Member  Banks, 
this  form  has  been  constructed,  the  original  of  which  will  be  for- 
warded abroad  with  the  necessary  instructions.  The  carbon  copy 
will  be  retained  in  a loose-leaf  binder  awaiting  the  return  of  the 
receipts. 

FORM  FX-23 

Upon  the  above  receipts  being  received,  they  will  be  returned 
to  the  Member  Banks  upon  this  form,  the  full  data  being  obtained 
from  the  duplicate  of  FORM  FX-22,  which,  as  previously  out- 
lined, will  be  retained  in  a binder  for  the  purpose. 

The  receipts  covering  postal  remittances,  returned  from  abroad, 
are  usually  written  in  an  undecipherable  way,  and  the  above  forms 
and  method  of  handling  will  materially  assist  in  completing  the 
record. 

FORM  FX-24 

(OUT — Travelers’  record  not  required) 

FORM  FX-25 

This  has  been  modeled  to  relieve  as  much  as  possible  formal 
letters  being  written  by  the  Department,  as  it  is  felt  that  many 
routine  matters  can  easily  be  covered  by  this  form.  The  duplicate 
will  serve  as  a record  for  the  files. 

FORM  FX-26 

This  is  a series  of  postal  cards  to  be  used  in  tracing  overdue 
items.  The  duplicate  is  filed  away  under  a maturity  “follow-up” 
system*  so  that  all  overdue  items  will  receive  intelligent  and  care- 
ful tracing. 


160 


FORM  FX-27 

This  form  will  be  executed  in  triplicate  and  is  intended  to 
cover  the  depositing-  of  funds  in  institutions  in  accordance  with 
instructions  received  from  Foreign  Banks.  The  first  sheet  is  to 
the  hank  receiving-  the  funds.  The  two  remaining-  portions  of 
the  form  serve  as  an  original  and  duplicate  receipt,  the  original 
being  forwarded  to  the  bank  requesting-  the  depositing  of  the  funds, 
and  the  duplicate  is  for  the  flies. 

FORM  FX-2S 

(OUT) 

FORM  FX-29 

This  is  for  use  in  arranging  cable  transfers  and  serves  as  a 
confirmation  and  bill  (inclusive  of  cable  charges)  to  the  customer, 
as  well  as  a credit  to  the  Foreign  Bank  and  a “follow-up”  to  see 
that  the  amount  due  is  received. 

FORM  FX-30 

This  covers  the  offerings  of  the  Foreign  Department,  looking 
to  the  establishment  of  lines  of  credit  needed  for  the  purchase  and 
sale  of  Exchange. 

FORM  FX-31 

For  use  of  the  Liability  Clerk  in  the  Foreign  Department,  and 
is  indicative  of  the  total  liability  of  customers,  both  as  drawer  and 
drawee. 

FORM  FX-32 

For  use  of  the  Liability  Clerk  in  the  Foreign  Department  and 
shows  the  total  of  payer’s  liability  under  Unmatured  Long  Items. 
FORMS  FX-33  and  34 

This  is  a suggested  “Block  Sheet”  together  with  a tab  for 
use  in  routing  items  to  different  departments. 

FORM  FX-35 

A Ledger  Sheet  for  the  Foreign  Department  Ledger  and  from 
which  it  will  be  noted  a balance  in  dollars  is  obtainable  at  any 
time.  A balance  in  foreign  amounts  is  deemed  unnecessary,  as  it 
would  serve  no  useful  purpose  except  for  the  reconciliation  of  the 
account  at  stated  intervals,  at  which  time  the  Auditing  Department 
can  easily  strike  the  balance. 

FORM  FX-36 

This  is  for  use  of  the  Manager  of  the  Foreign  Department  who 
will  do  the  trading,  or  who  will  influence  the  trading,  and  arrange 
for  the  establishment  of  quotations.  It  has  been  arranged  upon 
a Chicago  basis,  but,  of  course,  it  may  easily  be  adjusted  to  what- 
ever center  it  is  determined  to  have  the  rates  emanate  from. 
FORMS  FX-37  and  38 

These  sheets  are  intended  to  be  compiled  weekly  by  the  Liability 
Clerk  of  the  Foreign  Department  and  in  turn  to  be  delivered 
to  the  Manager  of  the  Department  for  the  purpose  of  keeping  him 
ih  close  touch  with  the  liabilities  of  his  clients,  without  the  neces- 
sity of  consulting  the  Liability  Ledger.  It  is  also  suggested,  if 
required,  that  the  originals,  or  perhaps  duplicates,  of  the  form 
be  delivered  to  the  Board  of  Directors  of  the  Federal  Reserve  Bank 
at  stated  intervals. 


161 


FORM  FX-39 

This  is  designed  to  cover  the  receipt  of  a cable  from  abroad, 
concerning  which  it  is  necessary  to  cable  a reply  and  may  be  of 
use  in  relations  with  Member  Banks  as  well  as  for  those  from 
whom  Bills  of  Exchange  have  been  purchased  in  the  open  market 
FORM  FX-40 

This  form  is  somewhat  descriptive  of  its  use  and  is  intended 
to  be  a matter  of  record  of  the  addition  of  any  word  in  the  private 
cable  code. 

FORM  FX-bl 

This  is  an  added  Ledger  Sheet  for  the  Foreign  Department 
Ledger,  descriptive  of  the  record  of  purchases  and  sales  of  Foreign 
currency,  over  the  counter.  Its  use  will  enable  any  Examiner 
to  know  just  how  much  of  any  particular  Foreign  currency  is 
being  held  in  the  Department,  together  with  the  dollar  value  at 
which  it  is  being  carried  on  the  books. 

FORMS  FX-42  and  43 

These  are  Credit  and  Debit  tickets  descriptive  of  the  different 
classes  of  Foreign  currency  bought  and  sold,  and  from  which  the 
bookkeeper  will  post  to  the  Foreign  Currency  Sheet. 

FORM  FX-U 

This  is  a labor-saving  form  which  covers  an  advice  to  the 
customer,  together  with  a Debit  and  Credit  to  different  accounts. 
FORM  FX-45 

This  is  identical  with  FORM  FX-44,  with  the  exception  that 
the  advice  to  the  customer  reflects  a Debit  in  his  account,  the 
manifolding  entry  being  a Credit  to  some  other  account. 

FORM  FX-46 

A suggested  form  of  Daily  Statement  for  the  Foreign  De- 
partment, showing  its  condition  in  a similar  manner  to  that 
of  the  rest  of  the  Bank.  This  Daily  Statement  should  be  in  the 
hands  of  the  administration  of  the  Bank  each  morning  at  the 
same  time  that  the  Daily  Statement  Book  of  the  General  Bank 
is  being  examined,  so  that  the  two  may  be  compared,  if  necessary 
FORM  FX-47 

This  form  has  been  arranged  in  order  that  the  Regional  Banks 
might  be  equipped  to  handle  strictly  collection  items  payable  in 
foreign  countries,  and  upon  which  no  advance  or  credit  would  be 
made,  until  the  actual  settlement  of  the  item.  Its  explanation 
follows: 

Page  1 — Accompanies  the  original  draft  and  documents  abroad. 

Page  2 — Accompanies  the  duplicate  draft  and  documents  abroad 

Page  3 — Serves  as  an  acknowledgment  of  the  receipt  of  the 
item,  together  with  a “follow-up.” 

Page  4 — Is  an  advice  of  credit  to  the  customer. 

Page  5 — Is  a credit  to  the  customer’s  account. 

Page  6 — Is  a debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-48 

This  is  identical  with  FORM  FX-47,  with  the  exception  that 
it  is  intended  to  cover  strictly  Collection  Items  payable  in  foreign 


162 


countries,  which  may  be  received  by  Branch  Banks  and  which 
would  be  forwarded  abroad  for  account  of  its  Regional  Bank.  Its 
explanation  follows: 

Page  1 — Accompanies  the  original  draft  and  documents  abroad. 

Page  2 — Accompanies  the  duplicate  draft  and  documents  abroad. 

Page  3 — Serves  as  an  acknowledgment  to  Regional  Bank  of 
the  receipt  of  the  item. 

Page  4 — Serves  as  an  acknowledgment  to  Branch  Bank  of  the 
receipt  of  the  item,  together  with  a “follow-up.” 

Page  5 — Advice  for  customer  of  the  Branch  Bank. 

Page  6 — Credit  for  customer  of  the  Branch  Bank. 

Page  7 — Debit  to  the  Regional  Bank. 

Page  8 — Letter  to  the  Regional  Bank  descriptive  of  the  for- 
warding of  the  item. 

Page  9 — Advice  for  Branch  Bank. 

Page  10 — Credit  for  Branch  Bank. 

Page  11 — Debit  to  “Due  from  Foreign  Banks.” 

FORM  FX-49 

A sample  check  to  be  used  by  the  Regional  Bank  in  drawing 
upon  their  direct  connections  abroad,  and  concerning  which  it 
will  be  noted  that  the  original  and  duplicate  advices,  together 
with  the  Credit  to  the  Foreign  Bank’s  account,  as  well  as  the 
Auditor's  checking  stub,  have  been  written  at  the  time  of  the 
issuance  of  the  check. 

FORM  FX-50 

A sample  check  to  be  used  by  the  Regional  Banks  in  drawing 
upon  a branch  or  a correspondent  of  their  foreign  connection. 
FORM  FX-51 

A sample  check  for  the  use  of  Regional  Banks  in  drawing  their 
long  drafts  upon  a direct  connection  abroad. 

FORM  FX-52 

This  is  the  departmental  daily  proof  sheet,  upon  which  is  tran- 
scribed the  totals  as  obtained  from  the  recapitulation  of  the  “Block” 
sheets. 

It  will  be  noted  that  in  each  case  the  accounts  described  upon 
the  proof  sheet  represent  simply  interlocking  balances  with  the 
General  Ledger  and  other  departments,  so  that  the  proof  of  the 
accuracy  of  the  figures  is  controlled  by  other  departments. 

AUDITING  DEPARTMENT. 

The  duties  of  the  Auditor  will  be  largely  governed  by  his  vested 
power  and  authority,  but  in  no  sense  should  his  department  form 
an  operating  unit  of  the  Bank. 

His  functions  should  be  those  of  verification  and  control,  sys- 
tematic examinations  of  the  different  departments,  criticism  of 
discipline  and  system,  and  he  should  have  a general  knowledge 
of  the  earnings  and  expenses  of  the  Bank. 

The  routine  of  the  Auditing  Department  would  consist  of  ex- 
aminations: verification  of  correction  entries;  scrutiny  of  Gen- 


163 


eral  Ledger  tickets;  adjustment  of  errors;  reconciliation  of  bal- 
ances, both  domestic  and  foreign;  maintaining  direct  correspon- 
dence with  Member  Banks,  etc.,  in  reply  to  inquiries  affecting  the 
adjustment  of  accounts;  investigations  resulting  from  the  mark- 
ing of  mail  matter  to  the  Auditing  Department  by  the  officers  of 
the  Bank  who  desire  special  investigations  to  be  made;  control 
with  a daily  proof  and  by  means  of  checking  to  stubs,  all  cashier’s 
checks,  expense  vouchers,  redemption  checks,  and  certified  checks; 
arranging  for  the  handling  and  re-forwarding  of  National  Bank 
Examiners’  requests  for  information,  and  establishing  a proof  upon 
the  General  Ledger. 

The  forms  of  the  Department  would  be: 

FORM  A-l 

This  will  be  used  for  the  registration  of  such  inquiries  as  may 
be  received  in  connection  with  examinations  by  bank  examiners, 
directors,  etc. 

FORM  A-2 

To  be  used  in  forwarding  the  balance  of  any  account,  as  at 
the  close  of  business  on  a certain  day,  in  response  to  an  authorized 
request. 

FORM  A-3 

Reconcilement  blank  to  accompany  the  daily  statement  which 
will  be  forwarded  to  each  accohnt  upon  the  last  business  day  of 
the  month. 

FORM  A-k 

Sample  envelope  to  be  enclosed  with  the  above  form  of  recon- 
cilement, in  order  that  its  return  may  be  made  directly  to  the 
Auditing  Department. 

FORM  A-5 

Card  record  for  registering  the  receipt  of  reconcilements. 
FORM  A-6 

A tracer  to  be  forwarded  no  later  than  the  15th  of  the  succeed- 
ing month,  to  such  accounts  as  have  not  reconciled  their  balance 
of  the  month  prior. 

FORM  A- 7 

A form  to  be  used  in  decreasing  formal  letter  writing,  looking 
to  the  adjustment  of  exceptions  as  shown  upon  the  reconcile- 
ments. 

FORM  A-8 

Form  of  reconcilement  to  be  retained  by  the  Auditing  Depart- 
ment and  upon  which  will  be  inscribed  the  reconciliation  of  bal- 
ances with  other  Federal  Reserve  Agents  as  well  as  with  Foreign 
Banks. 

FORM  A-9 

To  be  used  after  the  reconciliation  of  Foreign  Accounts,  in  in- 
structing the  Foreign  Department  to  make  entries  covering  Com- 
mission charges,  Postage,  etc. 

FORM  A-10 

Auditor’s  proof  of  General  Ledger,  the  figures  for  which  will 
be  assembled  from  a recapitulation  of  the  different  Departmental 
proof  sheets. 


164 


FORM  A-ll 

Suggested  letterhead  for  the  correspondence  of  the  Auditor. 
FORM  A-12 

Card  record  to  be  filed  chronologically  in  a special  Examination 
File,  and  upon  which  will  be  inscribed  the  Teller  or  subject  to  be 
examined,  the  salient  points  to  be  covered,  and  the  best  methods 
of  procedure.  This  will  enable  the  Auditor  to  make  systematic 
examinations  at  irregular  periods,  owing  to  the  fact  that  upon 
each  day  of  examination  the  card  will  be  replaced  in  the  file  in 
the  compartment  of  a future  determined  date. 

FORM  A-13 

To  be  used  in  requesting  special  reports  from  clerks  who  have 
made  errors,  either  of  commission  or  omission. 

In  this  connection,  it  is  suggested  that  the  Secretary-Treasurer 
and  an  assistant,  or  any  two  officers  who  might  be  determined 
upon,  meet  with  the  Auditor  each  business  morning,  for  the  purpose 
of  examining  the  typewritten  reports  which  will  be  the  result  of 
using  FORM  A-13,  as  in  this  way  the  designated  officials  of  the 
Bank  will  be  kept  in  close  touch  with  the  clerical  force.  Possible 
defects  of  system  will  be  obtained  in  this  way,  which  it  would 
be  difficult  to  develop  in  any  other  manner. 

FORM  A-H 

This  will  be  used  in  reporting  the  results  of  departmental  and 
other  examinations. 

There  will  be  no  Cashier-Check  Registers  maintained  in  the  de- 
partment, inasmuch  as  this  work  is  a duplication  of  labor,  and 
for  the  purposes  of  proof  and  control  the  same  object  will  be 
served  by  retaining  the  Credit  Tickets  executed  at  the  same  time 
the  checks  are  drawn. 

MAIL  DEPARTMENT 

This  Department  will  receive  and  distribute  all  mail  matter 
received  between  the  hours  of  9:00  A.  M.  and  2:30  P.  M.,  and 
likewise  it  will  be  entrusted  with  the  forwarding  to  Member  Banks, 
etc.,  of  all  mail  matter  emanating  from  the  officers  and  the  dif- 
ferent departments. 

It  is  suggested  that  the  equipment  include  steel  racks  with 
suitably-sized  compartments,  in  which  the  mail  for  each  Member 
Bank  may  be  accumulated  (in  this  way  a saving  of  postage  will 
be  made) ; an  electric  envelope  opener,  and  an  electric  envelope 
sealer. 

FILING  DEPARTMENT. 

The  object  of  this  Department  will  be  the  collection  and  filing 
of  all  mail  matter  which  has  accumulated  during  the  day.  There 
are  no  distinctive  forms  for  the  Department,  but  it  is  suggested 
that  the  files  be  operated  upon  a plan  of  assembling  into  separate 
compartments,  under  an  alphabetical  arrangement  of  Member 
Banks,  such  mail  matter  and  carbon  copies  of  transactions  as  may 
affect  each  individual  bank. 


165 


The  daily  accumulation  of  ledger  sheets  from  the  Bookkeeping 
Department,  liability  slips  from  the  Discount  Department,  Gen- 
eral Dedger  tickets,  cancelled  checks  from  the  Auditing  Depart- 
ment, and  the  proof  sheets  and  block  sheets  of  all  Departments, 
will  likewise  be  filed  and  cared  for  by  this  Department. 

M ISCELL  ANEOUS 

The  following  described  forms  are  general  in  character  and 
cannot  be  directly  assigned  to  any  particular  department: 

FORM  MISC-1 

A sample  of  check  to  be  used  in  the  different  departments,  the 
distinguishing  red  numbers  being  indicative  of  the  department 
originating  the  transaction.  It  is  suggested  that  the  Discount,  Se- 
curities, Accounting,  and  Foreign  Exchange  Departments  be  sup- 
plied with  their  own  Cashier’s  checks  to  bear  the  distinctive  num- 
bers 1,  2,  3,  and  4,  respectively. 

It  will  be  noted  that  at  the  time  the  check  is  drawn  a corre- 
sponding credit  has  also  been  executed  by  means  of  a carbon  im- 
pression. 

An  auditor’s  stub  has  been  affixed  to  the  check,  which  will  pro- 
tect the  signing  officer,  who  upon  affixing  his  signature  will  de- 
tach the  stub  and  place  it  in  a box  situated  upon  his  desk.  The 
Auditing  Department  will  collect  the  stubs  the  following  morning 
and  check  them  to  their  proper  entries. 

FORMS  MISC-2  and  3 

These  are  sample  credit  and  debit  tickets,  -which  will  be  used 
by  the  departments  in  executing  entries  which  have  not  been  cov- 
ered by  other  forms. 

FORM  MISC-i 

This  is  a form  of  debit  ticket  which  will  be  used  by  clerks  work- 
ing after  hours  and  to  whom  a disbursement  of  a nominal  sum 
will  be  made. 

FORM  MISC-5 

This  will  be  used  in  handling  expense  incidental  to  the  for- 
warding or  receiving  of  telegrams  for  account  of  Member  Banks, 
etc.,  its  explanation  being: 

Slip  No.  1 — Advice  to  Member  Bank  of  the  Charge. 

Slip  No.  2 — Debit  to  Member  Bank’s  Account. 

Slip  No.  3 — Credit  to  “Provision  for  Disbursements.” 

FORM  MISC-6 

This  will  be  used  by  all  departments  in  forwarding  registered 
mail  matter  to  the  Mail  Department,  the  purpose  being  that  each 
department  will  obtain  a signed  receipt  from  the  Mail  Depart- 
ment that  the  contents  of  the  letters  or  parcels  have  been  received 
by  them. 

FORM  MISC-1 

A vault  record  to  be  used  by  the  different  departments  and  is 
designed  to  show  the  time  their  particular  compartments  were 
closed,  as  well  as  the  opening  and  closing  of  the  main  doors  of  the 
vault. 


166 


FORM  MI  SC-8 

This  is  a card  to  be  used  by  the  Chief  Clerk,  which  is  descrip- 
tive of  applications  for  employment,  as  well  as  an  employee’s 
record. 

FORM  MISC-9 

A sheet  to  be  used  by  all  departments  in  reporting  to  the  Chief 
Clerk  the  time  of  closing  of  the  previous  day,  together  with  any 
debit  or  credit  difference  which  might  have  occurred  in  their  gen- 
e ai  work.  Provision  has  also  been  made  for  the  reporting  of 
absentees  and  the  reason  for  absence. 

FORM  MISC-10 

A form  to  be  used  by  the  Chief  Clerk  in  reporting  to  the 
Secretary-Treasurer  the  time  of  closing  of  all  departments  on 
the  day  prior,  together  with  any  debit  or  credit  differences  in 
their  work,  names  of  absentees  and  the  reason  for  their  absence. 
The  data  for  this  form  will  be  supplied  from  the  departmental 
record  as  outlined  in  FORM  MISC-9. 

FORM  MI  SC -11 

This  will  be  used  by  the  different  departments  in  requisitioning 
supplies  from  the  Chief  Clerk.  The  second  sheet  of  the  form 
is  a carbon  copy  of  the  requisition,  which  will  be  retained  by  the 
department,  in  order  that  they  may  be  in  a position  to  check 
the  departmental  bill  which  will  be  rendered,  say,  semi-monthly, 
by  the  Chief  Clerk  or  the  Purchasing  Agent. 

FORM  MI  SC -12 

A card,  upon  which  will  be  inscribed  the  signatures  of  those 
authorized  in  the  Member  Banks  to  transact  business  with  the 
Federal  Reserve  Banks. 

FORM  MISC-13 

A card,  upon  which  will  be  inscribed  the  signatures  of  Govern- 
ment officers  authorized  to  transact  business  with  the  Federal  Re- 
serve Banks. 

FEDERAL  RESERVE  AGENT 

As  the  Federal  Reserve  Agent  will  have  relations  with  the  Fed- 
eral Reserve  Bank  and  the  Comptroller  of  the  Currency,  and  as 
he  likewise  will  be  under  the  necessity  of  making  certain  reports 
to  the  Federal  Reserve  Board  at  Washington,  all  of  the  forms  to 
be  used  by  the  Agent  have  been  designed  to  cover  his  necessary 
bookkeeping  entries  as  well  as  to  provide  for  a concentrated  ad- 
vice of  his  operations  to  the  Federal  Reserve  Board. 

The  forms  of  the  Agent  are: 

FORM  FRA-1 

This  is  intended  to  cover  the  receipt  by  the  Federal  Reserve 
Agent  of  Federal  Reserve  Notes  from  the  Comptroller  of  the  Cur- 
rency, its  explanation  being: 

Slip  No.  1 — Acknowledgment  of  receipt  to  the  Comptroller  of 
the  Currency. 

Slip  No.  2 — Credit  ‘‘Federal  Reserve  Notes  from  Comptroller  of 
Currency.” 

Slip  No.  3 — Debit  “Federal  Reserve  Notes  on  Hand.” 


167 


FORM  FRA-2 

This  will  be  used  in  forwarding  mutilated  Federal  Reserve 
Notes  to  the  Comptroller  of  the  Currency  for  destruction,  its  ex- 
planation being: 

Slip  No.  1 — Notification  to  the  Comptroller  of  the  forwarding  of 
the  Notes. 

Slip  No.  2 — To  accompany  the  shipment. 

Slip  No.  3 — Credit  “Federal  Reserve  Notes  on  Hand.” 

Slip  No.  4 — Debit  “Federal  Reserve  Notes  from  Comptroller  of 
Currency.” 

FORM  FRA-3 

This  will  be  for  use  of  the  Federal  Reserve  Agent  when  issuing 
Federal  Reserve  Notes  to  the  Federal  Reserve  Bank,  its  explana- 
tion being: 

Slip  No.  1 — Credit  to  “Federal  Reserve  Notes  on  Hand.” 

Slip  No.  2 — Debit  to  “Federal  Reserve  Notes  in  Circulation.” 

Slip  No.  3 — Debit  “Re-Discounts  to  secure  Federal  Reserve 
Notes.” 

Slip  No.  4 — Credit  “Collateral  received  from  Federal  Reserve 
Bank,  Chicago.” 

The  advice  to  the  Federal  Reserve  Board  at  Washington  of 
the  issuance  of  the  currency  and  its  supporting  collateral,  having 
already  been  obtained  by  means  of  the  Continuous  Record,  as  out- 
lined in  the  Discount  Section,  it  will  not  be  necessary  to  provide 
this  form  with  a slip  covering  advice.  It  will,  however,  be  noted 
that  all  of  the  necessary  bookkeeping  entries  have  been  wTritten  at 
one  operation. 

FORM  FRA- 4 

This  will  be  used  to  cover  the  depositing  of  Gold  or  other  law- 
ful money  by  the  Federal  Reserve  Bank  with  the  Federal  Reserve 
Agent  to  reduce  the  outstanding  Federal  Reserve  Notes,  its  expla- 
nation being: 

Slip  No.  1 — Credit  to  “Provision  for  Redemption  of  Federal 
Reserve  Notes.” 

Slip  No.  2 — Debit  “Gold  and  Lawful  Money  to  retire  Federal 
Reserve  Notes.” 

FORM  FRA- 5 

This  is  a sample  loose-leaf  ledger  sheet  to  be  used  by  the  Fed- 
eral Reserve  Agent  in  maintaining  such  controlling  accounts  as 
will  be  necessary. 

It  will  be  noted  that  a duplicate  of  the  ledger  sheet  has  been 
provided,  with  the  thought  that  this  will  serve  the  purpose  of  a 
concentrated  daily  statement  to  the  Federal  Reserve  Board,  of  the 
condition  of  the  Federal  Reserve  Agent’s  accounts. 

For  the  relations  of  the  Federal  Reserve  Agent  with  the  Sec- 
retary of  the  Treasury,  covering  transactions  in  “Transit  Account,” 
see  FORM  B-5  of  the  Bookkeeping  Department. 

SECRETARY  OF  THE  TREASURY 

Under  the  proposed  Transit  plan,  a certain  portion  of  the  gold 
reserves  of  the  Federal  Reserve  Banks  wall  be  concentrated  at 
Washington  with  the  Secretary  of  the  Treasury,  who  will  main- 


168 


tain  a record  descriptive  of  the  balance  of  the  gold  reserve  of  each 
Federal  Reserve  Bank. 

The  entries  in  the  different  balances  will  be  obtained  from  daily 
statements  received  from  the  Federal  Reserve  Agents,  who,  as 
previously  outlined,  will  verify  the  entries  and  authenticate  the 
daily  statements  with  their  signature. 

As  it  will  be  advisable  for  each  Federal  Reserve  Bank  to  be 
acquainted  daily  with  the  condition  of  their  gold  reserve  at  Wash- 
ington, a form,  in  duplicate,  has  been  provided  which  will  enable 
the  Secretary  to  retain  the  top  page  as  a ledger  sheet,  or  perma- 
nent record,  while  the  duplicate  will  be  forwarded  to  the  Federal 
Reserve  Banks. 


U)9 


APPENDIX  III. 

A STATISTICAL  BUREAU  FOR  THE  FEDERAL  RESERVE 

BOARD.* 

One  important  duty  of  the  Federal  Reserve  Board  will  be  to 
direct  and  to  influence  the  money  market  for  the  benefit  of  the 
country.  To  enable  the  Federal  Reserve  Board  to  fulfil  this  task, 
it  must  thoroughly  and  carefully  follow  the  developments  of  eco- 
nomic life,  and  must  be  equipped  with  detailed  data  and  informa- 
tion bearing  on  the  same. 

With  this  end  in  view,  it  is  recommended  that  a statistical 
bureau  (hereafter  called  “Bureau”)  of  unquestioned  ability  be  es- 
tablished. The  duties  of  the  Bureau  should  be  not  only  to  gather 
figures,  data,  and  statistics,  and  to  compile  statistical  records,  but 
also  to  digest  information  collected  and  to  put  it  in  such  shape  that 
it  will  serve  as  a basis  for  the  Federal  Reserve  Board  in  directing 
the  Federal  Reserve  Banks. 

The  Federal  Reserve  Act  provides  for  weekly  statements  to 
be  furnished  by  the  various  Federal  Reserve  Banks  and  in  addi- 
tion empowers  the  Board  to  require  of  each  bank  such  statements 
and  reports  as  it  may  deem  necessary.  It  is  mainly  informa- 
tion of  this  nature  which  should  enable  the  Bureau  to  supply  the 
Board  with  the  material  necessary  to  apply  a “preventive”  banking 
policy.  A number  of  explanatory  forms  for  the  compilation  of  such 
statistics  has  been  devised,  and  their  various  purposes  will  be  dis- 
cussed in  the  following  pages.f 
Form  I.  Cash  on  Hand: — (See  page  187.) 

As  probably  the  largest  part  of  the  country's  money  reserve 
will  be  centred  at  the  Federal  Reserve  Banks,  it  goes  without 
saying  that  the  amount  of  these  reserves  and  their  fluctuations 
from  week  to  week  are  of  great  significance.  Figures  collected 
as  suggested  in  Form  I and  brought  into  correlation  with  other 
facts  will  after  a time  enable  the  Board  to  ascertain  the  laws  un- 
derlying and  the  causes  affecting  the  rise  and  fall  of  the  reserves. 
For  instance,  once  the  average  for  reserve  is  established,  the  varia- 
tions can  be  compared  with  this  norm  to  judge  w'hether  the  fluc- 
tuations are  normal  or  abnormal. 

Form  II.  “Gold  Supply  on  Hand”: — (See  page  188.) 

In  view  of  the  great  importance  of  gold  in  our  monetary  sys- 
tem, statistics  of  the  gold  reserve  should  be  reported  in  detail. 
Form  II  proposes  twTo  heads  for  classification: 

(1.)  Gold  certificates  and  coins  of  the  U.  S. 

(2.)  Bullion  and  foreign  coin. 

This  division  is  important,  for  under  certain  circumstances 

*Prepared  by  Ludwig  Bendix,  Esq.  See  page  39  above. 

tit  is,  of  course,  understood  that  each  Federal  Reserve  Bank 
must  place  at  the  Bureau’s  disposal  detailed  information  of  the 
kind  indicated  on  the  specimen  sheets,  and  that  the  Bureau  will 
prepare  consolidated  statements  of  such  data. 


170 


an  increase  or  decrease  in  bullion  indicates  financial  operations, 
such  as  the  export  of  gold,  which  may  call  for  action  by  the  Board. 

In  addition  to  the  statistics  collected  by  the  Bureau,  the  figures 
on  gold  exports  and  imports  are  of  great  value  and  should,  there- 
fore, be  given  to  the  Bureau  as  soon  as  collected  in  the  Depart- 
ment of  Commerce. 

Form  III  and  IV.  Federal  Reserve  Notes.  — (See  pages  18  9 and 
190.) 

As  this  country  has  not  yet  any  experience  with  modern  bank- 
notes, statistics  on  the  new  Federal  Reserve  notes  should  be  made 
as  specific  as  possible.  Form  III  is  arranged  in  the  same  way  as 
Form  I,  and  will  reveal  the  various  fluctuations  in  note  issues. 

Great  stress  should  be  laid  on  data  on  the  different  denomina- 
tions of  banknotes  (Form  IV).  It  has  been  argued  that  the 
new  system  will  secure  quick  expansion  as  well  as  quick  con- 
traction of  banknotes.  The  underlying  idea  is  that  when  credit 
is  needed  notes  will  be  issued  against  rediscounts  of  commercial 
paper,  and  when  this  demand  has  been  satisfied  the  notes  will  grad- 
ually return  to  the  various  Federal  Reserve  Banks  for  redemption. 
This  supposition  is  doubtless  correct  so  far  as  notes  in  denomina- 
tions of  $100.00  and  $50.00  are  concerned,  but  it  is  very  likely  that 
notes  in  smaller  denominations,  i.  e.,  $20.00,  $10.00,  and  $5.00,  will 
not  conform  to  this  law.  Once  in  circulation,  it  is  likely  that  they 
will  return  to  the  banks  only  occasionally,  and  these  notes  will  lose 
their  character  as  a credit  instrument  and  be  used  like  all  the  othei' 
forms  of  paper  money.  Thus  it  is  evident  that  a large  amount 
of  small  notes  in  circulation  might  easily  counteract  the  pur- 
pose of  the  law.  The  Federal  Reserve  Banks  or  the  Federal  Reserve 
Agents  should  therefore  report  from  week  to  week  on  the  various 
denominations  in  circulation,  and  the  Bureau  should  carefully  fol- 
low the  relative  proportion  of  each.  In  case  the  circulation  of  the 
small  notes  should  become  too  extensive  the  Federal  Reserve  Agents 
should  be  advised  to  issue  these  denominations  only  in  limited 
quantities. 

Form  V A and  V B.  Analysis  of  Deposits: — (See  pages  191  and 
192.) 

The  deposits  of  the  Federal  Reserve  Banks  are  divided  into 
three  classes: 

(1.)  Compulsory  deposits  by  member  banks  as  prescribed  by 
the  Act, 

(2.)  Voluntary  deposits  by  member  banks  as  provided  in  the 
Act, 

(3.)  Government  deposits. 

The  deposits  of  the  first  category  may  safely  be  assumed  to  be 
relatively  permanent,  i.  e.,  not  liable  to  great  change  in  amount. 
Deposits  of  the  second  and  third  category,  however,  are  subject  to 
more  frequent  and  more  extensive  fluctuations.  On  the  one  hand, 
it  may  occur  that  the  Government  and  the  Federal  Reserve  Banks 
withdraw  large  amounts  of  their  deposits  simultaneously,  and  on 
the  other  hand,  withdrawal  of  Government  funds  may  be  coincident 


171 


with  increased  deposits  by  member  banks,  or  vice  versa.  In  the 
first-mentioned  case,  the  Federal  Reserve  Banks  would  be  deprived 
of  a large  amount  of  their  working-  capital,  while  in  the  last-men- 
tioned case  there  may  be  no  cash  movement  to  speak  of.  Further- 
more, these  various  changes  in  the  amounts  of  the  different  cate- 
gories of  deposits  may  follow  each  other  at  specific  short  intervals 
during  certain  periods  of  the  year.  On  the  basis  of  the  statistical 
data  relating  to  deposits,  such  as  suggested  in  Form  V A and  V B, 
the  Bureau  will  in  due  course  be  able  to  predict  the  changes  about 
to  take  place  in  the  amount  of  the  deposits,  and  will  thus  tend  to 
facilitate  the  Board’s  banking  policy  considerably. 

Form  VI  and  VII.  Relation  of  deposits  and  Federal  Reserve  notes 
to  cash  on  hand: — (See  pages  193  and  194.) 

With  a view  to  precluding  inflation  of  the  note  circulation,  the 
Act  very  prudently  prescribes  comparatively  high  limits  as  to  the 
minimum  cash  reserve  to  be  maintained  against  deposits  and  notes 
in  circulation.  It  could  not,  however,  define  any  average  amount 
of  cash  reserves  to  be  kept  by  the  banks  in  ordinary  times  to  secure 
a permanent  sound  banking  activity.  This  had  to  be  left  to  the 
management  of  the  Federal  Reserve  Banks  and  to  the  wisdom  of 
the  Federal  Reserve  Board.  Thus,  it  is  the  duty  of  the  Federal 
Reserve  Board  to  see  to  it  that  the  reserve  actually  maintained 
by  the  banks  is  at  all  times  sufficiently  in  excess  of  the  legal 
minimum  to  insure  the  proper  operation  of  the  entire  system  in 
times  of  emergency.  Careful  statistics  as  outlined  in  Form  VI  will 
undoubtedly  be  a material  help  to  the  Federal  Reserve  Board  in  the 
fulfilment  of  this  part  of  its  responsible  task.  The  approximate 
amount  of  deposits  and  notes  not  secured  by  cash  on  hand,  in  the 
case  of  each  Reserve  Bank  individually,  as  well  as  of  the  entire 
chain  of  banks,  will  of  course  vary.  When  the  supply  of  funds 
is  abundant  only  a very  small  part  of  deposits  and  notes  will  be 
unsecured  by  cash;  under  normal  monetary  conditions  there  will 
be  an  average  rate  of  cash.  When  seasonal  demands  for  credit 
make  themselves  felt,  a relatively  high  proportion  of  deposits  and 
notes  will  be  without  cash  security.  Information  along  these 
lines,  after  a period  of  years,  will  place  the  Board  in  a position 
1o  recognize  the  approach  of  abnormal  conditions  at  an  early  date 
end  to  apply  an  equalizing  and  preventive  discount  policy.  For 
the  same  purpose,  Form  VII  has  been  devised.  A comparison  of 
the  percentage  of  cash  on  hand  with  both  deposits  and  Federal 
Reserve  notes  during  Ihe  various  periods  mentioned  above  may 
safely  be  considered  as  an  index  of  impending  deviations  from 
the  rule. 

Bills  of  Exchange : 

It  may  safely  be  presumed  that  in  the  future,  transactions  in 
drafts,  notes,  and  bills  of  exchange  will  constitute  a very  consider- 
able portion  of  the  business  of  the  member  banks,  for  the  simple 
reason  that  such  assets  will  be  realizable  at  any  time,  by  rediscount- 
ing with  Federal  Reserve  Banks.  It  is  evident,  therefore,  that  com- 
mercial paper  will  hereafter  play  a much  more  important  part  in 


172 


economic  life  than  heretofore,  and  needs  close  surveillance  and  con- 
trol from  the  beginning;  for  on  this  will  depend  whether  the  im- 
pending change  in  our  monetary  and  credit  system  will  be  beneficial 
or  detrimental  to  our  economic  condition.  The  Federal  Reserve  Board 
will  be  called  upon  to  pilot  the  course  of  this  development,  and  its 
task  in  so  doing  is  one  of  grave  responsibility.  It  is  for  this  reason 
that  great  stress  has  been  laid  on  the  preparation  of  forms  which 
will  enable  the  Board  to  carefully  follow  the  discounting  operations 
in  all  their  details. 

Form  VIII.  Analysis  of  all  purchases  of  Mils  of  exchange : — (See 
page  19  5.) 

This  form  has  been  prepared  in  accordance  with  the  various 
sections  of  the  Federal  Reserve  Act  pertaining  to  bills  of  exchange. 
There  are  three  sources  from  which  the  Federal  Reserve  Banks 
may  acquire  bills  of  exchange.  Under  certain  conditions  they  may 
rediscount  the  commercial  paper  bought  by  other  Federal  Reserve 
Banks  (Col.  2-4).  Ordinarily,  and  in  fact  preferably,  they  will  in- 
vest their  funds  in  commercial  paper  purchased  either  direct  from 
member  banks  (Col.  5-16)  or  in  the  open  market  (Col.  17-37).  In 
the  open  market  again  they  may  acquire  the  paper  from  member 
banks  (Col.  17-25)  or  from  other  than  member  banks  (Col.  26-34). 
Furthermore,  as  regards  the  purchases  from  member  banks,  the 
law  discriminates  as  to  the  nature  of  the  business  from  which  the 
paper  originates;  whether  it  arises  out  of  commercial  transactions 
or  is  issued  for  agricultural  purposes  or  based  on  the  importation  or 
exportation  of  goods.  The  open  market  operations  are  divided  in 
the  act  according  to  the  form  of  paper;  into  purchases  of  cable 
transfers,  bankers’  acceptances,  and  bills  of  exchange.  If  detailed 
information  is  collected  along  the  lines  of  these  classifications  it 
will  be  an  easy  matter  for  the  Federal  Reserve  Board  to  exercise 
a permanent  control  and  particularly  to  investigate  whether  mem- 
ber banks  avail  themselves  of  the  Federal  Reserve  Banks  regularly 
or  only  in  exceptional  cases;  such  statistics  will  show  to  what  ex- 
tent, on  account  of  spasmodic  and  insufficient  rediscounts  on  the 
part  of  member  banks,  the  Federal  Reserve  Banks  are  obliged  to  in- 
vest their  funds  in  commercial  paper  purchased  in  the  open  market 
from  other  than  member  banks.  Furthermore,  it  is  important  to 
know  the  proportion  of  the  different  classes  of  paper  to  the  grand 
total  of  transactions  during  each  month,  and,  in  addition,  the 
Federal  Reserve  Banks  should  be  required  to  report  the  average 
face  amount  and  average  maturity  of  each  class  of  paper  dis- 
counted by  them.  With  such  statistical  data  on  hand,  the  Bureau 
should  in  due  course  be  able  to  recognize  whether  or  not  the  dis- 
counts of  any  of  these  classes  of  paper  exceed  the  limits  pre- 
scribed by  a sound  banking  policy.  With  this  object  in  view,  Form 
VIII  has  been  made  as  specific  as  possible;  a study  of  the  40  col- 
umns of  this  table  will  make  its  various  purposes  clear. 

Form  IX.  Analysis  of  funds  invested  in  Mils  of  exchange:— (See 
page  196.) 

While  Form  VIII  is  designed  to  show  and  analyze  the  total  of 
the  discounting  transactions  of  each  bank  during  a certain  period 


173 


(month,  year),  Form  IX  purports  to  indicate  the  amount  of  funds 
invested  in  bills  of  exchange  at  a fixed  date  ( end  of  the  month,  end 
of  the  year)  and  specifies  it  according'  to  the  different  classes  of 
commercial  paper.  Information  of  this  kind  will  be  import- 
ant, indicating  to  the  Federal  Reserve  Board  the  amount 
of  each  Federal  Reserve  Bank’s  liquid  assets.  For  instance,  if 
a bank  invests  its  funds  largely  in  bankers’  acceptances 
and  foreign  bills  of  exchange  bought  in  the  open  market,  it  will 
be  in  a much  stronger  position  financially  than  it  would  be  with 
investmenls  consisting  principally  of  rediscounted  paper  of  the 
kinds  and  maturities  specified  in  Section  13  of  the  Federal  Reserve 
Act. 

Form  X.  Purchases  of  foreign  hills  of  exchange : — (See  page  197.) 

A number  of  Federal  Reserve  Banks  probably  will  invest  their 
funds  to  ;t  great  extent  in  foreign  bills  of  exchange,  in  the  first 
place  on  account  of  insufficient  offerings  of  domestic  paper  and 
in  the  second  place  on  account  of  the  fact  that  foreign  bills  of  ex- 
change are  justly  considered  to  be  the  most  liquid  of  all  invest- 
ments. But,  as  our  gold  supply  may  be  unfavorably  affected  by 
such  a policy  it  will  be  necessary  for  the  Board  to  watch  these 
transactions  very  closely.  Statistics  concerning  this  subject  should, 
therefore,  be  prepared  with  great  Care  and  should  be  made  as 
specific  as  possible,  so  as  to  provide  the  Federal  Reserve  Board 
with  the  required  information  on  this  question.  The  data  pro- 
posed in  Form  X will  show  the  proportion  of  purchases  of  foreign 
bills  of  exchange  as  against  total  investments  in  bills  of  exchange 
and,  furthermore,  indicate  the  fluctuations  as  well  as  the  average 
amount  and  the  average  maturity  of  foreign  paper.  It  is  also 
hoped  that  the  knowledge  of  the  situation  will  facilitate  discrimina- 
tion between  sound  commercial,  and  speculative,  or  purely  financial 
foreign  bills  of  exchange. 

Form  XI.  Foreign  hills  of  exchange  on  hand. — -(See  page  198.) 

It  is  of  no  less  importance  to  know  how  the  portfolio  of  each 
Federal  Reserve  Bank  is  composed,  particularly  with  reference  to 
tht  countries  where  foreign  bills  of  exchange  are  payable.  It  will 
be  readily  comprehended  that  investments  in  English,  German,  or 
French  paper  are  of  a much  more  liquid  nature  than  bills  drawn 
on  other  countries.  From  another  viewpoint,  it  will  be  useful  to 
know  the  composition  and  extent,  for  instance,  of  a Federal  Re- 
serve Bank’s  South  American  portfolio,  as  reflecting  the  influence 
of  our  new  banking  organization  on  the  financing  and  developing 
of  our  foreign  trade. 

Form  XII  and  XIII.  Fluctuations  of  rates  of  foreign  hills  of  ex- 
change as  an  index  to  our  trade  balance:— ( See  pages  199 
and  200.) 

The  fluctuations  of  the  rates  of  foreign  bills  of  exchange  already 
receive  careful  attention  at  the  present  time;  in  future  they  will 
even  be  of  still  greater  significance  in  connection  with  our  economic 
and  financial  system.  The  information  to  be  gathered  by  the 
Bureau  on  this  subject,  therefore,  must  be  recorded  with  the  mi- 


174 


nutest  care.  Form  XII  gives  the  number  of  days  on  which  ex- 
change rates  were  higher  or  lower  than  parity.  Great  Britain, 
Germany,  and  France  are  chosen,  as  with  these  countries  we  are 
continually  in  extensive  commercial  and  financial  relation.  The 
rates  of  exchange  for  these  countries,  therefore,  clearly  indicate 
the  status  of  our  international  trade  balance.  If  these  rates  are 
above  parity  (parity  meaning  the  value  of  our  standard  unit  ex- 
pressed by  the  standard  unit  of  another  country),  it  signifies  that 
our  balance  of  trade  is  unfavorable,  or  vice  versa.*  It  will  be  of 
great  importance  to  the  Federal  Reserve  Board  to  know  the  number 
of  days  of  the  month  (or  year),  on  which  the  rates  of  foreign  ex- 
change have  been  favorable  or  unfavorable.  A decided  tendency 
towards  unfavorable  rates  would  probably  induce  the  Board  to 
pursue  an  appropriate  discount  policy. 

In  order  to  ascertain  the  frequency  of  extreme  fluctuations  of 
rates  of  exchange,  Form  XIII  has  been  prepared  indicating  the 
number  of  days  on  which  exchange  rates  were  higher  or  lower  than 
the  gold  points.  The  gold  points  signify  that  under  normal  condi- 
tions gold  can  be  either  exported  or  imported,  as  the  case  may  be. 
The  longer  the  period  during  which  such  statistics  are  collected, 
and  the  more  detailed  the  data,  the  easier  it  will  be  to  recognise  the 
causes  correlated  to  these  phenomena.  Information  along  these 
lines  will,  therefore,  constitute  very  valuable  material  for  the  Fed- 
eral Reserve  Board’s  decisions. 

Fcim  XIV.  Credit  balances  abroad: — (See  page  201.) 

Changes  in  foreign  rates  of  exchange  may  be  wholly  or  partly 
caused  or  prevented  by  the  Federal  Reserve  Banks  themselves, 
by  enhancing  or  withdrawing  their  foreign  credit  balances.  There- 
fore, it  will  be  necessary  to  consider  these  foreign  credit  balances  if 
fluctuations  in  the  rates  of  foreign  exchanges  are  to  be  correctly  in- 
terpreted. 

Form  XV.  Funds  invested  in  bills  of  exchange,  classified  accord- 
ing to  where  bills  are  payable: — (See  page  202.) 

The  classification  of  the  discount  portfolio  of  each  Federal  Re- 
serve Bank  according  to  various  districts  of  the  United  States  and 
foreign  countries  where  the  bills  are  payable  is  advocated  for  the 
following  reasons: 

If  a Federal  Reserve  Bank’s  supply  of  rediscounted  paper  is 
exclusively  composed  of  bills  payable  in  the  same  district,  it  may 
be  safely  presumed  that  the  bank’s  discount  business  is  too  narrow. 
If,  on  the  other  hand,  the  supply  consists  of  a fair  proportion  of 
bills  payable  in  the  bank’s  own  district  and  of  bills  payable  in  other 
districts  or  abroad,  the  portfolio  would  not  only  afford  more  se- 
curity but  could  also  be  more  readily  liquidated  in  case  of  neces- 
sity. 

*BilIs  of  Exchange  on  Paris  are  quoted  in  Dollar  units,  i.  e., 
$1=5.1826  francs.  An  increase  in  the  price  of  francs,  therefore, 
would  express  a higher  valuation  of  the  Dollar  Unit  or  a favorable 
trend  of  our  trade  balance  with  France. 


175 


Form  XVI.  Analysis  of  all  sales  of  WUs  of  exchange: — (See  page 
203.) 

As  a rule,  the  Federal  Reserve  Banks  will  buy  only  bills  of  ex- 
change to  be  held  in  their  portfolios  until  maturity  and  then  present 
them,  or  have  them  presented,  to  the  drawees  for  payment.  When, 
however,  one  Federal  Reserve  Bank  finds  its  cash  reserves  de- 
pleted while  another  bank  has  a large  surplus,  the  Federal  Reserve 
Board  may  permit — or  even  direct  (see  section  lib  of  the  Act) — the 
bank  in  need  of  cash  to  rediscount  a portion  of  its  holdings  of  bills 
of  exchange  with  the  Federal  Reserve  Bank  having  an  abundance 
of  cash  reserve.  Furthermore,  when  a Federal  Reserve  Bank  has 
lost  control  of  the  open  market,  it  will  be  necessary  for  the  Bank  to 
regain  control  by  sales  of  bills  of  exchange. 

Discount  operations  between  Federal  Reserve  Banks  will  prob- 
ably occur  only  when  one  of  these  banks  is  facing  an  unforeseen 
emergency.  Sales  in  the  open  market,  however,  may  happen  quite 
frequently,  for  the  following  reason:  As  soon  as  the  open  market 

rate  declines  to  such  an  extent  that  the  difference  between  a Fed- 
eral Reserve  Bank’s  official  rate  and  the  open  market  rate  exceeds 
a certain  limit,  the  Federal  Reserve  Bank  will  have  to  choose 
between  two  alternatives:  In  order  to  lessen  the  difference  in  the 

rates,  it  will  either  have  to  reduce  its  own  bank  rate  or,  by  selling 
in  the  open  market,  endeavor  to  cause  a rise  of  the  open  market 
rate.  Thus,  in  all  cases  where  a reduction  in  the  official  rate  seems 
inadvisable,  the  Federal  Reserve  Bank  will  eventually  have  to  sell  in 
the  open  market.  Discount  operations  among  Federal  Reserve  Banks 
as  well  as  sales  by  Federal  Reserve  Banks  in  the  open  market  must 
be  considered  of  such  fundamental  importance  that  statistics  on 
these  subjects  should  be  collected  in  full  detail.  To  illustrate:  If 

all  the  Federal  Reserve  banks  should  be  obliged  regularly  to  sell  in 
the  open  market,  it  would  demonstrate  that  the  official  discount 
rates  are  generally  too  high.  If,  however,  one  Federal  Reserve 
Bank  should  frequently  sell,  it  would  indicate  that  its  policy  is 
not  well  adapted  to  local  conditions.  Statistics,  as  suggested  in 
Form  XVI,  would  indicate  the  reasons  for  such  policy. 

Form  XVII.  Amount  of  domestic  hills  of  exchange  on  hand  ( classi- 
fied according  to  lines  of  business  of  drawees,  acceptors  or 
makers ): — (See  page  204.) 

The  statistics  collected  according  to  Form  XVII  will  reveal  the 
economic  conditions  underlying  the  discounting  operations  of  the 
Federal  Reserve  Banks.  With  this  object  in  mind,  bills  of  exchange 
should  be  grouped  in  at  least  five  classes,  as  follows: 

(1.)  Commerce,  transportation  and  insurance. 

(2.)  Manufacturing  industry. 

(3.)  Agriculture,  forestry  and  fisheries. 

(4.)  Miscellaneous,  including  the  mining  industry. 

(5.)  Finance  and  banking  (duplicate  items). 

Each  item  should  be  entered  in  the  proper  column,  according  to 
the  line  of  business  of  the  party  on  whom  the  bill  is  drawn.  Inas- 
much as  bills  of  exchange  originating  from  stock,  bond,  or  invest- 


176 


ment  transactions  are  not  eligible  for  rediscount,  the  group  finance 
and  banking  contains  only  bankers’  acceptances  issued  in  the  inter- 
est of  one  of  the  industrial  classes.  These  bills  should,  therefore,  be 
placed  accordingly.  In  order  to  show,  however,  the  amount  and  per- 
centage of  bankers'  acceptances  in  proportion  to  the  other  forms  of 
paper,  finance  and  banking  has  been  added  as  a special  group. 
(Compare  columns  12  and  13  in  Form  XVII.) 

If  the  bills  of  exchange  are  classified  as  indicated  above,  the 
Board  will  at  all  times  be  in  a position  to  ascertain  the  amount 
and  percentage  up  to  which  the  various  industries  avail  themselves 
of  the  credit  facilities  granted  by  the  Federal  Reserve  Banks.  Each 
of  the  groups  mentioned  above  (excepting  group  5)  could,  and 
perhaps  should,  be  subdivided  in  order  to  make  the  data  as  specific 
as  possible,  as  this  would  doubtless  contribute  to  early  recognize 
the  existence  of  overexpansion  in  one  or  the  other  industry. 

Form  XVIII.  Face  amounts  of  domestic  hills  of  exchange : — ( See 
page  205.) 

The  portfolio  of  each  Federal  Reserve  Bank  will  be  composed 
of  bills  of  exchange  in  all  denominations,  i.  e.,  in  small,  medium  and 
large  amounts.  It  is  the  general  understanding  that  the  face 
amount  of  a bill  reveals  to  a certain  extent  its  character  and 
origin.  To  illustrate:  A small  draft  indicates  a small  business 
transaction,  and  a bankers’  acceptance  for,  say,  $25,000  manifests 
the  adjustment  of  a debt  originating  in  connection  with  a more 
extensive  industry.  As  it  will  be  the  duty  of  the  new  Federal 
Reserve  Banks  to  serve  the  trade  and  commerce  in  all  stages — with 
due  security  and  safety — their  portfolios  should  show  a great  variety 
in  the  face  amounts  of  the  bills  discounted.  The  Federal  Reserve 
Banks  should  pursue  such  a discounting  policy  in  the  inter- 
est of  the  general  welfare,  and  for  their  own  benefit  as  well. 
The  denominations  of  the  bills  discounted  should,  therefore,  be 
classified  with  great  care.  In  view  of  this,  it  is  suggested  (by  Form 
XVIII)  to  divide  the  bills  discounted  by  each  bank  into  seven  cate- 
gories. The  first  class  should  comprise  all  the  bills  in  denominations 
up  to  $250,  the  second  from  $251  to  $500,  and  so  on  until  the  seventh 
class,  embracing  bills  over  $10,000.  The  sample  sheet  submitted 
contains  an  additional  classification,  i.  e.,  bills  payable  in  the  Bank’s 
district  and  bills  payable  in  other  districts. 

These  statistical  records  of  the  discounts  of  each  Federal  Reserve 
Bank,  when  compared  with  one  another,  will  provide  the  Board 
with  excellent  means  of  checking  up  the  discount  policies  pursued 
by  the  various  banks,  and  will  unquestionably  be  an  important 
source  of  information  for  the  Board  in  giving  its  directions  to  the 
Banks. 

Form  XIX  and  XX.  Maturities  of  hills  of  exchange: — (See  pages 
206  and  207.) 

Another  element  for  economic  control  is  the  maturity  of  a bill 
of  exchange.  Small  amounts  and  short  maturities  are  con- 
sidered the  ideal  form  of  investment  for  central  note  institutions. 
As  the  functions  and  purpose  of  the  Federal  Reserve  Banks  are 


177 


similar  to  those  of  the  European  central  note  banks,  they  should 
apply  analogous  principles  in  the  pursuance  of  their  discount  poli- 
cies, i.  e.,  it  should  be  their  aim  to  obtain  commercial  paper  with 
an  average  maturity  of  from  thirty  to  forty  days.  As  in  connection 
with  the  reserve  requirements,  the  Federal  Reserve  Act  stipulates 
the  maximum  maturity  limits  for  the  various  categories  of  discount- 
able bills.  It  is  evident,  however,  that  this  provision  alone  cannot  in- 
sure a sound  banking  policy,  but  that  the  Board  should  in  addition 
define  limits  of  average  maturities.  With  a view  to  ascertaining  what 
would  constitute  fair  average  maturities,  Forms  XIX  and  XX  have 
been  prepared. 

By  a statistical  arrangement,  as  suggested  in  Form  XIX,  the 
various  maturities  of  domestic  paper  are  disclosed.  For  this 
purpose  the  maturities  are  divided  into  different  classes  and  the  rel- 
ative proportion  of  each  class  to  the  total  compared.  Such  statis- 
tics will  also  reveal  the  average  maturity  of  all  discounted  paper. 
The  significance  of  the  arrangement  may  be  illustrated  by  the  fol- 
lowing table: 

(EXAMPLE) 


Domestic  bills  of  exchange  were  bought  with  the  following  maturities: 


Maturing 

Within 

In  Per  Cent 
of  Total 

Maturing 
Inside  of 

In  Per  Cent 
of  Total 

Calculation  of 
Average  Maturity 

Days 

Index 

15  days 

17 

15  days 

17 

7.5 

127.5 

in  additional  15  days 

47 

one  month 

64 

22.5 

1057.5 

in  an  add.  month 

18 

two  months 

82 

45 

810 

in  an  add.  month 

8 

three  months 

90 

75 

600 

in  an  add.  month 

7 

four  months 

97 

105 

735 

in  an  add.  two  months 

3 

six  months 

100 

150 

450 

i otai  inaex 

Total 

100 

Average  Maturity  37.80  Days 

If,  as  in  the  example  above,  the  discounts  consist  of  an  average 
maturity  of  37.8  days,  a Federal  Reserve  Bank  will  at  all  times 
have  a comparatively  large  quantity  of  bills  in  its  portfolio  with 
short  maturities.  The  results  of  each  Federal  Reserve  Bank’s  policy 
with  regard  to  the  maturities  will  be  clearly  illustrated  in  a state- 
ment of  the  amount  of  bills  on  hand  at  the  end  of  each  month,  as 
proposed  in  Form  XX.  The  higher  the  amount  and  percentage  of 
short  maturities,  the  stronger  will  be  the  bank’s  condition.  It  will 
be  an  easy  matter  for  such  a bank  to  meet  its  daily  obligations 
(growing  out  of  withdrawals  of  deposits  or  redemption  of  bank- 
notes against  cash)  with  the  funds  paid  to  the  bank  for  bills 
maturing  from  day  to  day.  The  relative  liquidity  of  the  various 
Federal  Reserve  Banks  is  especially  revealed  by  statistics  of 
this  kind. 

Form  XXI.  Extent  and  limit  of  credit  accommodation  granted  by 
the  Federal  Reserve  Banks  (classified  according  to  lines  of 
business): — (See  page  208.) 

This  subject  has  been  dealt  with  in  detail  by  the  Preliminary 
Organization  Committee  under  the  heading  “Examinations.”  If  local 
credit  departments  are  created,  as  suggested  by  said  committee,  the 
Bureau  would  have  at  its  disposal  statistical  material  of  the  highest 


178 


value.  If,  for  instance,  condensed  statements  are  prepared  by 
each  local  credit  department  as  expressed  in  Form  XXI,  the  Board 
would  become  thoroughly  familiar  with  the  characteristic  features 
of  each  Federal  Reserve  Bank  on  these  points: 

(1.)  The  proportion  in  which  credit  facilities  are  distributed 
among-  the  various  lines  of  business, 

(2.)  A classification  of  credit  accommodation  according-  to 
amounts  in  which  it  is  granted. 

With  such  data  on  hand,  the  Bureau  could  compile  condensed  tables 
showing  these  facts  for  the  entire  country  and  also  disclosing 
whether  the  various  industrial  lines  of  business,  small  concerns  and 
large  corporations,  are  treated  alike  in  the  new  organization. 

Form  XXII  and  XXIII.  Bills  of  exchange  remaining  unpaid  at  time 
of  maturity: — (See  pages  209  and  210.) 

The  degree  of  precaution  shown  by  a Federal  Reserve  Bank  in 
its  discount  operations  is  illustrated  by  the  number  of  bills  re- 
maining unpaid  at  maturity.  The  statistical  material  regarding  the 
unpaid  bills  is,  therefore,  of  paramount  importance  for  the  Board. 
The  information  will  have  to  be  gathered  along  the  following  lines: 
(1.)  Form  of  unpaid  drafts  (Form  XXII),  whether  single  or 
two-name  paper;  in  the  latter  case  bankers’  accept- 
ances should  be  particularly  marked,  as  it  may  be 
presumed  that  this  form  of  paper  will  hardly,  if  ever, 
remain  unpaid;  should  a bankers’  acceptance  not  be 
taken  up  at  maturity,  however,  this  would  be  a very 
serious  occurrence  and  should  be  recorded  separately. 
In  the  course  of  a few  years,  this  classification  will 
enable  the  Board  to  decide  the  question,  now  a matter 
of  intense  discussion,  as  to  whether  or  not  single  name 
paper  affords  as  much  safety  as  two-name  paper,  and 
is  as  well  adapted  for  use  as  cover  against  bank  notes. 
(2.)  Origin  of  paper  (Form  XXIII),  whether  arising  out  of 
commercial,  industrial,  agricultural,  or  miscellaneous 
transactions.  If  the  number  of  unpaid  drafts  in  any 
one  month  or  stated  period  increases  proportionately 
for  all  lines  of  business,  it  may  be  concluded  that  busi- 
ness conditions  on  the  whole  are  impaired.  If  the 
number  of  unpaid  drafts  increases  only  for  some  par- 
ticular line  of  business,  an  investigation  should  be 
made  as  to  the  reasons  underlying  the  increase.  In  the 
same  way,  a decrease  in  the  number  of  unpaid  drafts 
will  be  indicative  of  favorable  conditions  along  the  line 
in  question. 

RATES  OF  DISCOUNT. 

The  Federal  Reserve  Act  has  empowered  the  Board  to  review 
or  to  determine  the  rates  of  discount  to  be  charged  by  the  various 
Federal  Reserve  Banks.  The  purpose  of  this  provision  is  undoubt- 
edly to  insure  a uniform  discount  policy  (not  a uniform  discount 


179 


rate])  for  the  entire  country-  The  pursuance  of  a suitable  discount 
policy  has  always  been  regarded  as  one  of  the  most  difficult  prob- 
lems to  be  dealt  with  in  banking.  This  doctrine  certainly  applies 
particularly  to  a country  with  an  area  and  with  such  varying 
economic  conditions  as  in  the  United  States.  It  will  require  years 
of  experience  to  recognize  the  currents  and  undercurrents  influ- 
encing the  fluctuations  in  the  demand  for  money  and  credit  in  this 
country.  A number  of  forms  has,  therefore,  been  prepared  dealing 
primarily  with  the  discount  policy. 

Form  XXIV  and  XXV.  Changes  in  discount  rates: — (See  pages 
211  and  212.) 

Form  XXIV  shows  the  discount  rates  and  their  fluctuations;  the 
sole  purpose  of  this  form  is  to  enable  the  Board  to  keep  posted  at 
a glance  on  this  important  subject.  On  Form  XXV,  however,  each 
change  of  a discount  rate  is  to  be  recorded,  together  with  the  reason. 
It  is  especially  important  to  record  whether  the  change  was  oc- 
casioned by  events  in  the  international  money  market  (reasons  I, 
II,  III,  IV)  (for  which  purpose  the  statistics  on  rates  of  exchange 
should  be  compared),  or  by  economic  developments  in  the  United 
States,  by  favorable  or  unfavorable  business  conditions  as  indicated 
by  a corresponding  increase  or  decrease  in  the  offerings  of  domestic 
bills  of  exchange  (reasons  IV,  VII,  VIII).  It  is,  furthermore,  possi- 
ble to  determine  which  discount  rates  are  lowered  or  raised  on 
account  of  developments  in  the  international  money  market  as  well 
as  changes  in  economic  conditions  in  the  United  States  (reasons 
IV  and  X). 

Form  XXVI  and  XXVII.  The  demand  for  credit  facilities: — (See 
pages  213  and  214.) 

Form  XXVI  purports  to  disclose  the  influence  of  seasonal  de- 
mands for  credit  on  the  reserves  of  the  various  Federal  Banks.  In 
column  2 should  be  recorded  the  kind  of  seasonal  demands,  i.  e., 
crop  movements,  quarterly  dividends,  and  so  forth.  The  difference 
between  the  amount  of  deposits  and  notes  not  secured  by  cash 
before  and  after  the  seasonal  demand  as  shown  by  the  Bank’s 
statements  (Col.  3-5)  illustrates  the  increase  in  the  demand  for 
credit  from  one  week,  or  month,  to  the  following.  At  the  same 
time,  there  should  be  a corresponding  decrease  of  cash  on  hand 
as  against  deposits  and  notes  (Col.  6-8).  These  figures  (Col.  5 
and  8)  must  be  brought  into  correlation  with  the  various  discount 
rates.  Statistics  of  this  nature  should,  in  due  time,  show  the  dis- 
count rates  best  suited  for  any  given  percentage  of  cash  reserve  at 
different  periods. 

Form  XXVII  is  proposed  as  an  indicator  expressing  the  de- 
mand for  credit  facilities  in  one  figure.  The  underlying  idea  is 
as  follows:  On  the  one  hand,  the  deposits  of  the  member  banks 
contain  a considerable  portion  of  their  clients’  working  capital,  and 
on  the  other  hand,  the  paper  rediscounted  by  Federal  Reserve 
Banks  represents  indebtedness  of  the  business  world.  It  follows 
that  when  both  are  brought  into  correlation  and  the  one  is  sub- 
tracted from  the  other,  the  resultant  difference  must  in  some  way 


ISO 


express  a credit  balance  of  the  business  world  (Col.  3).  This 
balance,  it  is  evident,  increases  with  a diminishing-  demand  for 
credit  or  with  slack  business,  and  decreases  with  a larger  demand 
for  credit  or  an  expansion  of  business.  The  proportion  of  domestic 
bills  of  exchange  to  deposits  (Col.  5)  would  indicate  these  iden- 
tical fluctuations,  These  figures  could  be  used  covering  longer 
periods,  if  due  allowances  are  made  for  the  normal  gradual  exten- 
sion of  the  country’s  business.  With  a view  to  ascertaining-  whether 
the  fluctuations  shown  by  this  indicator  are  caused  by  increased 
or  decreased  domestic  or  foreign  trade,  the  domestic  bills  of  ex- 
change are  to  be  recorded  separately.  Should,  for  instance,  the 
figure  in  column  5 fall  and  that  in  column  8 rise,  this  would  signify 
diminishing-  domestic  and  expanding  foreign  trade,  and  vice  versa. 

The  indicator  above  described  is  similar  to  a method  employed 
in  Germany.  The  method  proposed  herein  has,  of  course,  been 
adapted  to  economic  and  banking  conditions  in  the  United  States. 
It  is  not  claimed  that  this  indicator  will  prove  to  be  an  absolutely 
accurate  barometer  of  conditions.  It  should,  however,  receive  a 
thorough  trial,  be  it  only  in  order  to  suggest  through  practice  an  - 
other  method  better  suited  to  this  purpose. 

Form  XXVIII.  Fluctuations  of  the  discount  rates  and  statistics 
regarding  factors  of  the  money  market  affecting  the  same: 
— (See  page  215.) 

The  purpose  of  this  form  is  to  demonstrate  the  use  of  the 
weekly  statements  as  a means  of  showing  not  only  the  causes 
and  reasons  for  changes  in  the  discount  rates,  but  also  the  ef- 
fects brought  about  by  such  changes.  This  form  will,  in  a way, 
give  a history  of  all  changes  and  an  exact  analysis  of  the 
factors  in  connection  therewith.  With  this  purpose  in  view,  a 
comparison  should  be  made  of  various  items  contained  in  the 
statement  issued  before  the  rate  was  changed  and  the  statement 
preceding  the  previous  change.  For  instance:  cash,  gold,  Federal 
Reserve  notes  in  circulation,  amount  of  deposits,  supply  of  bills  of 
exchange,  proportion  of  cash  reserves  as  against  both  deposits  and 
Federal  Reserve  notes  issued,  and  so  forth.  Inasmuch  as  changes 
in  discount  rates  are  frequently  caused  by  conditions  prevailing-  in 
the  open  money  market  and  in  the  international  money  market, 
all  facts  bearing  thereon,  such  as  rates  of  exchange,  rates  of  the 
open  money  market,  and  foreign  discount  rates,  have  been  cor- 
related in  this  form. 

Form  XXIX. — (See  page  216.) 

While  it  is  impossible  to  predict  whether  Federal  Reserve  Banks 
will  avail  themselves  of  the  privilege  of  dealing  in  securities,  it  is, 
nevertheless,  necessary  to  collect  in  advance  data  on  this  subject. 
History  proves  that  financial  operations  of  this  character  have 
overburdened  banknote  institutions  with  assets  that  could  not  be 
easily  liquidated,  and  embarrassed  them  so  seriously  that  they  could 
not  meet  their  obligations.  Thus  the  Bank  of  England  found  itself 
in  a most  serious  difficulty,  being  unable  to  redeem  its  banknotes  in 
cash  for  more  than  twenty  years  (1797-1819),  primarily  because  of 


181 


advances  made  to  the  English  Government.  Likewise  the  com- 
plete failure  of  the  Royal  Prussian  Bank  in  1806  resulted  from 
mortgage  loans  granted  to  some  Prussian  provinces.  On  the  other 
hand,  so  long  as  the  Federal  Reserve  Banks,  like  the  European 
Central  Banks,  are  to  be  in  a measure  public  banks  to  serve  the 
Government,  one  of  their  functions  must  necessarily  be  the  lending 
of  credit  to  the  various  States  and  communities  of  this  country  in 
cases  of  necessity.  This  is  a principle  generally  conceded  and  is 
fully  exemplified  in  the  history  of  European  central  banks.  The 
Bank  of  England  has  £18,175,000  invested  in  loans  to  the  English 
Government,  or  in  its  securities.  The  Bank  of  France  has  advanced 
to  the  French  Government  Frs.  200,000,000;  it  has  a permanent  in- 
vestment in  French  rentes  of  Frs.  100,000,000,  and  its  last  annual 
report  shows  among  the  assets  of  the  bank  a temporary  investment 
of  more  than  Frs.  100,000,000  in  French  obligations.  The  German 
Government  is  not  permanently  indebted  to  the  Reichsbank,  but  the 
latter  lends  its  credit  from  time  to  time  to  the  Empire  in  discounting 
short-time  obligations  in  the  form  of  Imperial  Treasury  Notes,  so- 
called  “Reichsschatzscheine.”  In  May,  1909,  the  Reichsbank  held 
these  to  the  amount  of  Marks  509,000,000.  While  this  amount  has 
been  considerably  decreased,  in  1913  it  still  averaged  about  95,000,000 
Marks.  Moreover,  the  Imperial  Budget  Law  of  July  3rd,  1913,  pro- 
vides an  issue  of  600,000,000  Marks  of  these  Reichsschatzscheine 
which  the  Reichsbank  may  at  any  time  be  called  upon  to  discount. 

Government  loans,  or  investment  in  government  securities, 
are,  moreover,  not  always  undesirable.  At  times  when  the  Fed- 
eral Reserve  Banks  are  temporarily  unable  to  utilize  funds  in  dis- 
counting commercial  paper,  advances  to  the  government  or  invest- 
ment in  government  securities  will  be  very  desirable  outlets  for 
their  idle  money. 

The  fortunate  financial  situation  of  the  United  States  makes  it 
very  unlikely  that  under  normal  conditions  the  Federal  Govern- 
ment will  ever  be  obliged  to  have  recourse  to  credit  from  the  Fed- 
eral Reserve  Banks.  It  is  not  improbable,  however,  that  smaller 
communities  may  apply  to  the  Federal  Reserve  Banks.  If  such 
financial  relations  become  customary,  such  credits,  though  formally 
for  a short  term,  may  in  the  end  become  permanent  investments. 
Steps  should  early  be  taken  to  prevent  such  an  outcome,  for  it 
may  result  in  loading  up  a Federal  Reserve  Bank  with  assets  that 
cannot  be  liquidated.  The  Board  has  it  in  its  power  to  forestall 
this,  for  purchases  of  securities  under  Section  14  (b)  must  be  made 
In  accordance  with  its  rules  and  regulations.  Danger  to  a Federal 
Reserve  Bank  through  such  investments  can  be  averted,  if  said 
banks  are  compelled  to  furnish  regularly  to  the  Board  statements 
as  outlined  in  form  XXIX.  This  form  provides  that  the  different 
classes  of  purchasable  securities  be  reported  separately;  United 
States  bonds  and  notes  are  set  apart  as  a special  class  and  distin- 
guished from  short  time  obligations  of  States,  municipalities,  etc. 
One  of  the  rules  that  should  be  prescribed  by  the  Board  is  that 
investments  in  securities  may  be  made  only  with  funds  permanently 
at  the  disposal  of  the  Federal  Reserve  Banks,  as,  for  example,  com- 


1S2 


pulsory  deposits.  The  form  proposed  provides  columns  indicating 
for  each  Federal  Reserve  Bank  the  relation  between  the  various 
classes  of  investment  securities  and  the  amount  of  compulsory  de- 
posits on  hand  (Cols.  4 and  22).  The  form  furthermore  con- 
tains columns  for  reporting  holdings  of  short-time  obligations 
(Col.  6,  9,  12,  15  and  18).  Finally,  classified  according  to  their 
maturity,  the  relation  of  the  amount  invested  in  each  class  of 
investments  to  the  total  amount  tied  up  in  securities  (Cols.  3, 
7,  10,  16  and  19)  is  revealed.  If  the  Federal  Reserve  Banks  are 
required  to  furnish  regularly,  statements  giving  the  data  classified 
to  show  these  details,  the  Board  will  find  it  easy  to  ascertain  whe- 
ther its  rules  and  regulations  are  strictly  complied  with. 

The  forms  herewith  submitted  for  consideration  represent,  of 
course,  but  a small  part  of  the  statistical  work  to  be  performed 
by  the  Bureau;  they  have  been  separately  discussed  in  order  to 
explain  the  special  purpose  for  which  they  are  devised.  Aside 
from  all  material  covering  finances,  money  and  credit,  great  stress 
should  be  laid  on  the  gathering  of  statistics  concerning  all  the 
various  phases  of  economic  life.  The  Bureau  should,  for  instance, 
possess  the  most  detailed  information  on  commerce,  manufacturing 
industries,  agriculture,  mining,  transportation,  the  situation  of  the 
labor  market,  and  foreign  trade.  Valuable  material  on  these  sub- 
jects may  be  obtained  from  official  sources.  This  would,  however, 
chiefly  serve  for  purposes  of  comparison.  The  current  information 
should  be  partly  furnished  by  the  various  Federal  Reserve  Banks 
and  partly  by  material  gathered  and  collected  by  the  Bureau  itself. 
If  the  Federal  Reserve  Banks  are  organized  as  suggested  by  the 
Preliminary  Organization  Committee,  the  Bureau  should  receive 
from  them  reports  on  all  these  subjects.  Moreover,  the  Federal 
Reserve  Agent  should  regularly  prepare  for,  and  furnish  to,  the 
Board  special  reports  concerning  the  economic  conditions  in  their 
districts.  Tn  addition  to  the  data  procured  through  these  channels, 
the  Board  should  establish  connections  with  experts  in  the  various 
lines  of  business  in  order  to  get  direct  reports  by  which  there  may 
also  be  obtained  material  of  fundamental  importance.  Finally,  the 
Bureau  itself  should  collect  all  statistics  available  on  these  subjects 
from  newspapers,  magazines,  journals,  financial  and  trade  papers. 
If  all  these  records  are  properly  filed  and  prepared,  the  Bureau  will 
be  able  to  appreciate  the  significance  of  all  events  and  occurrences 
in  business  life  and  to  give  at  any  time  a correct  interpretation  of 
a given  situation.  As  everything  depends  on  the  quality  and 
thoroughness  of  this  work,  it  is  evident  that  it  would  constitute 
the  principal  activity  of  the  Bureau.  Upon  this  assumption  the 
Board  would  be  equipped  with  information  of  a thoroughness  never 
obtained  by  any  European  Central  Bank.  Expansion  or  contrac- 
tion of  business  in  each  part  of  the  country  would  be  quickly  noted, 
-and  the  Board  could,  if  necessary,  advise  the  Federal  Reserve  Bank 
in  question  to  apply  such  a discount  policy  as  may  in  time  turn 
the  tide  or  prevent  an  overexpansion  in  one  part  of  the  country 
or  one  line  of  business  from  spreading  to  other  parts  of  the  country 


183 


or  other  lines  of  business.  The  recording  of  events  occurring  in 
the  United  States  would,  however,  not  suffice  to  protect  the  country 
from  possible  injuries  arising  out  of  the  new  banking  system. 
While  the  new  tariff  tends  to  open  the  United  States  more  than 
heretofore  to  foreign  competition,  one  of  the  results  of  the  Federal 
Reserve  Act  will  doubtless  be  to  make  the  American  money  market 
more  international  in  its  scope.  In  other  words:  the  gold  reserve 
of  this  country  will  be  considered  as  belonging  to  the  international 
money  market,  and  will  be  disposed  of  whenever  there  is  an  ad- 
vantageous opportunity  to  do  so,  just  as  we  shall  rely  to  a great 
extent  on  the  foreign  gold  reserves.  Under  these  circumstances 
it  will  be  necessary  to  follow  a policy  of  precaution  in  order 
that  this  close  financial  connection  with  foreign  countries  may  not 
turn  out  to  be  a disadvantage  to  this  country.  It  will,  therefore, 
be  indispensable  that  the  Bureau  collect  similar  statistics  as  those 
suggested  for  the  United  States — in  more  condensed  form,  of  course 
— on  conditions  prevailing  abroad.  Such  records  and  statistics 
should  embrace: 

A.  In  regard  to  finance  and  banking — • 

(1.)  General  monetary  and  financial  conditions  in  all  coun- 
tries: 

(2.)  Weekly  statements  of  the  great  European  central  banks, 
regularly  prepared  in  retrospective  form  in  order  to 
show  the  situation  prevailing  in  former  periods. 

(3.)  Fluctuations  in  bank  and  money  rates  abroad, 

(4.)  Fluctuations  in  foreign  exchange  rates  abroad. 

(5.)  Gold  movements  in  the  international  money  market. 

(6.)  Status  of  the  great  European  Private  banks.* 

B.  In  regard  to  economic  conditions: 

(1.)  Trend  of  business  in  European  countries. 

(2.)  General  market  conditions. 

(3.)  Development  of  foreign  trade  abroad. 

Moreover,  the  political  situation  in  these  important  countries 
should  likewise  receive  close  attention,  for  it  may  also  exert  an 
influence  on  the  American  money  market.  A disturbing  turn  in 
the  relations  between  the  great  European  powers,  the  hoarding  of 
gold  by  one  or  the  other  of  the  Central  Banks  (as  was  recently 
the  case  with  the  Bank  of  France  and  the  German  Reichsbank) 
would  have  to  be  brought  immediately  to  the  knowledge  of  the 
Board,  for  it  could  possibly  cause  a considerable  decrease  of  the 
gold  supply  of  the  United  States.  A financial  crisis,  overexpansion 
in  business,  or  even  a temporary  money  stringency  in  only  one  of 
these  countries  would  affect  our  money  market  and  might  lead  to 


*As  in  Europe  an  increased  demand  for  credit  is,  while  yet  in 
its  first  stage,  satisfied  by  the  private  banks  without  the  assistance 
of  the  Central  Banks,  the  monthly  reports  of  the  former  frequently 
reflect  a corresponding  change  in  economic  conditions  earlier  than 
the  weekly  statements  of  the  latter. 


1S4 


a more  or  less  extended  exporting  of  gold  from  this  country  to 
Europe.  To  secure  such  complete  information  on  foreign  condi- 
tions, it  does  not  suffice  that  the  Bureau  collect  its  figures  from 
foreign  publications.  It  would  be  indispensable  to  establish  con- 
nections through  which  exhaustive  reports  could  be  secured.  The 
correspondents  and  agencies  of  the  various  Federal  Reserve  Banks, 
as  well  as  the  foreign  branches  of  the  member  banks,  should  be 
required  to  perform  this  service.  But  it  would  be  of  no  less  im- 
portance to  have  also  reports  from  American  consuls  who  should  be 
able  to  furnish  in  time  valuable  material  on  such  economic  con- 
ditions in  foreign  countries  which  might  affect  the  American  money 
market.  It  may  also  be  advisable  to  include  American  Ambassadors 
and  Envoys  in  this  service.  Finally,  it  is  suggested  to  establish 
with  the  great  European  Central  Banks  (Bank  of  England,  Bank 
of  France,  German  Reichsbank)  a regular  individual  exchange  of 
opinions  in  regard  to  financial  and  economic  conditions  in  their 
respective  countries.  It  is  believed  that  such  a suggestion  coming 
from  the  Federal  Reserve  Board  as  representative  of  the  new 
American  sister  banking  system  would  be  very  favorably  accepted 
by  those  banks. 

CONCLUSION. 

The  foregoing  pages  have  outlined  the  various  functions  of  the 
Bureau.  Some  remarks  on  its  organization  may  well  be  added.  In 
view  of  the  comprehensive  and  far-reaching'  task  of  such  Bureau, 
it  should  be  equipped  from  the  outset  with  an  adequate  staff  of 
well-trained  men.  The  chief  of  the  Bureau  should  be  a man  who 
is  not  only  a first-class  statistician,  but  also  an  economist  of  ability 
and  thoroughly  familiar,  in  theory  and  practice,  with  problems  of 
money  and  credit,  who  is  able  to  give  opinions  on  matters  of 
finance  in  the  broadest  sense  of  the  word.  It  should  be  the  duty  of 
the  chief  of  the  Bureau  to  furnish  the  Board  with  detailed  and 
up-to-date  information,  based  on  data  collected  by  the  Bureau,  on 
all  important  subjects  relating  to  banking  here  and  abroad.  Under 
his  supervision  daily  reports  should  be  prepared  giving  such  data 
as  may  be  useful  or  necessary  to  the  Board  in  arriving  at  its 
decisions.  Furthermore,  it  should  be  his  duty  to  make  monthly, 
or,  if  necessary,  weekly  reports  on  economic  and  financial  conditions 
in  the  United  States  and  foreign  countries,  and  he  should  prepare 
each  week  a summary,  giving  the  result  of  an  analysis  of  the  weekly 
statements  and  other  reports  of  the  Federal  Reserve  Banks. 

The  Bureau  should  perform  its  various  duties  with  the  greatest 
secrecy.  All  material  collected  and  all  information  prepared  should 
be  for  the  exclusive  use  of  the  Board.  Neither  the  chief  of  the 
Bureau  nor  any  of  the  employees  should  be  allowed  to  write 
for  publication  on  questions  relating  to  banking  without  the  ap- 
proval of  the  Board.  Finally,  there  should  be  established  in  con- 
nection with  the  Bureau,  for  reference  purposes,  a well-equipped 
working  library  of  books  on  modern  banking,  keeping  on  file  all 
documents  published  by  European  central  banks. 


185 


In  conclusion,  the  fact  must  not  be  lost  sight  of  that  the  great 
European  central  banks  came  into  existence  when  modern  com- 
merce and  finance  were  in  their  first  stage  of  development.  This 
is  true  even  of  the  German  Reichsbank,  established  as  late  as  1876. 
for  the  latter  rested  on  the  well-founded  traditions  of  its  parent 
institution,  the  Bank  of  Prussia,  created  in  1845.  On  the  other; 
hand,  the  Federal  Reserve  Board  commences  its  activities  when 
commerce  and  finance  are  dealing  in  billions,  when  the  money  and 
credit  system  of  the  United  States,  as  well  as  of  the  great  European 
countries,  has  attained  a complexity  and  breadth  undreamed  of. 
Moreover,  the  scope  of  the  Federal  Reserve  Board’s  activity  is 
from  the  beginning  infinitely  larger  than  that  of  any  of  the  great 
European  central  banks. 

It  is  obvious  that  a well-organized  and  capably  managed  statis- 
tical department  would  be  of  greatest  service  and  facilitate  the 
difficult  task  before  the  Federal  Reserve  Board. 


186 


FEDERAL  RESERVE  BANK  OF FORM 

Cash  on  Hand. 


<3 

w><6 

a g 

<d  a 
0>  .. 

® O 


0) 

be  a 

<< 


187 


FEDERAL  RESERVE  BANK  OF FORM  II 

Gold  Supply  on  Hand. 


aJ'O 
O O 

HO 


* Col.  16-22  similar  to 
Col.  2-8 


SI  jg 

® a-1 
a 2 • 

u tc  O 
o-S'q 

SK- 


a too 
O «JC5 
O 

U t>  o 
c o 


® c 
> c 


c~  . 

£wSo 

5 


s ® 

S 

o £_. 

S > o 
e.*0 
a o w 


£e 

<«! 


18S 


FEDERAL,  RESERVE  BANK  OF FORM  III 

Federal  Reserve  Notes  In  Circulation. 

Difference  between  high  anti  low 
(Col.  4 and  0.) 

in  per  cent,  of  average 
(Col.  2.) 

CO 

Amount 

Low 

Amount 

«© 

Date 

U5 

High 

Amount 

Date 

Average 
| Amount 

* 

# 

Month 

fN 

C 

ci 

>- 

£ 

C 

c 

t- 

- 

a 

> 

189 


> 


K 

O 

0 


3 

y 

t- 

u 

C 


(A 

<U 

4-i 

o 

Z 


ca  a 
<u 

* § 


2 £ 
«5  W 

"0  w 

<u  ta 

[JU  H 

>4-  Eh 

0 <! 


r W 

C 

c O 

£ #5 

£ cd 
C 

e •-* 

0 s 

> o 
- c 

0 « 

(A  Q 

0 

0 


noi^inojiQ 
uis^ou  iB'jox 

N 

lO 
C f) 

In  per  cent, 
of  Total 
(Col.  12) 

Amount 

© 

$10 

In  per  cent, 
of  Total 
(Col.  12) 

© 

Amount 

ao 

O 

<N 

</> 

In  percent, 
of  Total 
(Col.  12) 

Amount 

© 

$50 

In  per  cent, 
of  Total 
(Col.  12) 

Amount 

O 

o 

c# 

In  per  cent, 
of  Total 
(Col.  12) 

Amount 

Month 

Jan. 

Dec. 

190 


DEPOSITS  OF  MEMBER  BANKS 


< 

> 


«K 

x 

o 

a 


a 

o 

a 

& 

a 

a 

> 

a 

a 

V) 

B 

j 

<! 

X 

a 

a 

a 

a 


TOTAL 

Low 

Amount 

r- 

tN 

Date 

to 

tH 

High 

43 

a 

3 

O 

s 

< 

!h 

© 

43 

c3 

a 

(SS  loo) 
spsodap 

JO 

-juao  J8d  ni 

eo 

i 

Average 

Amount 

! 

N 

OTHER  DEPOSITS 

LOW 

Amount 

iH 

Date 

© 

HIGH 

Amount 

© 

Date 

CO 

Average 

Amount 

r» 

LEGAL  RESERVES 

LOW 

Amount  ‘ 

© 

Date 

HOIH 

Amount 

Date 

W 

Average 

Amount 

N 

Month 

Jan. 

Dec. 

Year 
191..  . . 

191 


FEDERAL  RESERVE  BANK  OF FORM  V.B 

Analysis  of  Deposits. 


o 

i 

| Amount 

DEPOSITS 

t-1 

© 

c3 

Q 

CO 

w 

+3 

ALL 

A 

ftp 

O 

g 

< 

TOTAL 

X 

Date 

ss 

N 

Average 

Amount 

us 

N 

+3 

S3 

3 

O 

s 

C* 

6 

< 

© 

M 

W 

m 

c$ 

Q 

o 

Cl, 

65 

Q 

.3 

bp 

Amount 

C* 

** 

65 

§ 

£ 

Date 

a 

65 

> 

O 

0 

© 

bO 

c3 

Li 

In  percent, 
of  total 
deposits 
(Col.  25) 

e 

N 

> 

•P 

fl 

3 

Ci 

1 

•5 

Month 

CO 

Jan. 

Dec. 

Year 
191..  . . 

192 


FEDERAL  RESERVE  RAIVK  OF.  ••••••  FORM  VI 

Amount  of  Deposits  and  Federal  Reserve  Notes  not  Secured  by  Cash  on  Hand. 


GOLD 

Difference  between 
High  and  Low 
(Col.  11  and  13) 

In  per  cent, 
of  average 

H5 

Amount 

Low 

Amount 

13 

Date 

High 

Amount 

Date 

10 

Average 

Amount 

Ct 

ALL  FORMS  OF  MONEY 

Difference  between 
High  and  Low 
(Col.  4 and  6) 

In  per  cent, 
of  average 

CO 

Amount 

Low 

Amount 

Cfi 

Date 

High 

Amount 

Date 

n 

Average 

Amount 

N 

Month 

Jan. 

Dec. 

Year 

101 

193 


Percentage  of  cash  on  hand  against  both  Federal  Reserve  Notes  and  Deposits. 


Gold 

Low 

j Date 

O 

High 

a 

Date 

co 

Average 

All  forms  of  money 

& 

o 

J 

L5. 

o 

Date 

i© 

High 

Date 

CO 

Average  J 

N 

Month 

- 

Jan 

Dec 

Year 
191 . . .. 

194 


FEDERAL  RESERVE  BANK  OF FORM  IX 

Analysis  of  Funds  Invested  in  Bills  of  Exchange  at  the  End  of  each  Month. 


Grand 

Total 

N 

1 

Purchased  in  the  open  market 

Total 

From  other  than  member  banks| 

Bills 
of  ex- 
change 

© 

Bankers’ 

accept- 

ances 

a 

Cable 

transfers 

CD 

From 

member 

banks 

r» 

Purchased  from  member  banks  1 

Total 

© 

snoij'ejaodxo  jo 
suojq^jjodtni  no 
pgsisq  S99u,e)d999y 

1C 

•sasodond 
VBjminojjSv 
joj  panssi 

* 

suopo^sn'BJi 

l-BiojonimoD 

jo  jno  Su]sijv 

« 

9AJ9S9H  I'BJapa  * 
jaq!}o 

uiojj  posBqojnj 

Month 

Jan 

Dec 

196 


FEDERAL  RESERVE  RANK  OF FORM 

Purchases  of  Foreign  Bills  of  Exchange. 


K 


^jijruBtn  o2bjoav 

l ^ 

(junouiB  ^ 

9D12J  82«JaAV 

« 

Total  amount  of  purchases 

aStreqoxa 
jo  sum  jo 
sasnqajnd 
Itnoj  jo 
•juaa  jad  uj 

N 

Amount 

S 

s 

sraaji 
jo  jaqum^; 

© 

On  hand  at  the  end 
of  the  month 

om  aqj  jo 
paa  aqj 

SUTlI'BAQJd 

aSueqoxa  w 
jo  sis^q  uo 
panpsA 

© 

1 

smaji 

jo  jdquirif£ 

ao 

Amount  Invested 

Low 

Amt. 

$ 

Date 

© 

i 

High 

s 

<1 

U5 

Date 

aSu'eqoxa 
jo  sqiq  ui 
sjuamjsaA 
-ui  I'ejoj  jo 

•JU9D  J9d  UJ 

« 

Monthly 

Average 

$ 

N 

Month 

- 

Jan. 

Dec. 

Year 
191 

197 


Foreign  Bills  of  Exchange  on  Hand 

(AT  THE  END  OF  EACH  MONTH) 


H 

k! 


ss 

o 

b 


b 

O 

a 

* 

< 

s: 

B 

b 

e 

B 

» 

B 

SS 

b 

ft 

§ 

c 

B 

b 


Miscellaneous 

1G 

South  America 

«5 

Mexico 

W 

eo 

Mex.  $ 

N 

Canada 

<V> 

Can.  S 

10 

Other  European 
countries 

GQ 

05 

00 

France 

ffi 

OT 

S* 

50 

Germany 

«y> 

l© 

Mark 

England 

m 

eo 

Month 

- 

g §1 

SS  Q 

198 


Ctf 

bn 

G 

(8 

JS 

y 

x 

W 


£Q 

C 

bn 


S1  Z 
<u  o 

s» 


tfl 

y 

+j 

«s 

C6 


H 

« 

69 

£ 

CD 

0 

H 

<! 

« > 

a a 
1S 
a 

o % 
x < 
a a 
- h 
a 

o a 
a w 

fe  £ 
> o 

Z J 
o a 

CD° 

< a 
Qa 
a 2 


£§s 

a3o 

M (M 


© 

a^3 


hSO 

•SfjqS 


© C tj 

> «e  g 

O’®  ^ 


2 c <+* 

^ cj  _ , 
fcfix]  ^ 

5^o 


Sc2 

> d a 

J5J 


199 


<U 

bn 

C 

_C 

u a 
x o 
uj  5 

«*«  a 

H 

‘ 0 
<1 
K 
H 

CD 

►H 

H 
Pi 

o 

fa 

Pi 
fa 
o 

o 

H 

X 

fa 

Q 

g 

< 


CQ 

C 

bn 

'3 

fa 

o 

Us 


cn 

<u 

■M 

(5 

0£ 


||  II2 

ilih  i 

I|fi5  -s 

O 03*0  ©-g'J 

25  0-2  0« 


c3  c3 

^ O 


o.££ 

s 

3 fa- 55  •_, 

;poo 
? c &&«*-< 
an  *?«* 


o yi 

55  oS  o« 

< ^ fc£  «t  afe 


c 

H 03 
■“?  <• , 


n n ° 
O Ov. 


fa  — 


o 5i 

< 


2 5§fa 

- 

2“to 

05  Co 
t£  ct  a** 


icfl<i 

> 


03  fa 

> o 

°l 

O QJ 
-fa  50 


3 bfi°? 

; fa^o 

J,  OOi_h 

irr^S 
— — ■So 
05c  00 

fcJD  d P,tJ< 


rt—  5s  X 
£ ce  o a) 
2o> 


g oco 

■goc“®. 

•CS2S- 

fa 

o <u-  53*; 


_,  O 
2« 

CO 
>» 


m 


1 73  o£w 

5.2 

, -fa/^  ^ CD 

Sg^o^ 
fe  0 a &o“ 

3SoS^ 


200 


Credit  Balances  Abroad 


> 

M 

X 

s 

a 

o 

b 


b 

o 

a 

< 

s 

B 

i> 

PS 

B 

t»i 

B 

cs 

B 


<D 

.0 


§§• 
£ S 

£3 


U5 


K 

B 

0 

B 


©OJ 


201 


4>  W 
bfl  J 


S3 


o 

C z 

• Zn  1—1 


0) 

-M 

C/5 

<y 

> 

C 


fe 

C/5  HH 

T1  0,3 

U cn 

c < 

3 ^ 

iZ  ° 


Payable  Abroad 

qjuoni  jo 
pua  aqj  jy 

© 

Low 

tint 

GO 

Date 

r» 

High 

tmt 

© 

! Date 

i 

'■5 

oSnaSAV 

Amino  jv 

Payable  in  Other  Districts 

qjuoin  jo 
pua  aqj  jy 

n 

Low 

Amt. 

N 

Date 

3 

xi 

60 

Amt. 

© 

Date 

a 

sSn-raAV 
Annuo  IV 

CO 

Payable  in  the  Bank’s  own 
Federal  Reserve  District 

qjaoai  jo 
pua  aqj JV 

Low 

Amt. 

© 

© 

d 

Q 

L<5 

£2 

60 

Amt. 

Date 

W 

03VJ3AV 

Apnuojv 

Mo. 

- 

•Jan 

Dec 

Year 
191 

202 


FEDERAL,  RESERVE  BANK  OF FORM  XVI 

Analysis  of  all  Sales  of  Bills  of  Exchange. 

(DURING  EACH  MONTH.) 


Grand  total 

Average 

maturity 

CO 

Average 

face 

amount 

15 

Amount 

Sold  in  the  open  market 

Total 

Average 

maturity 

Average 

face 

amount 

KI 

Amount 

11 

To  other  than  Member  Banks 

Average 

maturity 

10 

Average 

face 

amount 

05 

Amount 

GO 

To  Member  Banks 

Average 

maturity 

Average 

face 

amount 

CO 

Amount 

•O 

Sold  to  other 
Federal  Reserve  Banks 

Average 

maturity 

Average 

face 

amount 

eo 

Amount 

N 

Month 

- 

Jan. 

Dec. 

Year 
191..  . . 

203 


FEDEBAL  RESERVE  BANK  OF FORM  XVII 

Amount  of  Domestic  Bills  of  Exchange  on  Hand. 

(Classified  according  to  lines  of  business  of  drawee,  acceptor,  or  maker  at  the  end  of  each  month.) 


Finance  and 
banking 

S % 

13 

N 

Total 
S % 

11 

10 

Miscellaneous  | 
(including  mining 
industry) 

S % 

OS 

ao 

Agriculture 
Forestry 
Fisheries 
$ % 

r» 

CO 

Manufacturing 

industry 

$ % 

Commerce  trans- 
portation insur- 
ance 

$ % 

N 

Month 

- 

Jan j 

Dec 

Year 

191  

204 


Face  Amount  of  Domestic  Bills  of  Exchange. 


n 

3 

- 

o 

fa 


fa 

fa 


ID 

fa 

fa 

fa 

- 

fa 

c 

fa 

fa 


Total 

V5. 

Amount 

© 

Items 

a 

Payable  in  other 
districts 

ao 

Amount 

Items 

© 

Payable  in  banks’  own 
i Federal  Reserve  District 

Vi. 

Amount 

Items 

M 

Face  amount 

N 

Up  to  $250 
$ 251  — $ 500 
501  — 1,000 

1.001  — 2,500 
2,501  — 5.000 

5.001  — 10,000 

above  10,000 

TOTAL 

Month 

- 

Year 
191 

205 


H 

K 


P5 

O 

fa 


<w 

to 

£ 

ts 

-e 

o 

X 

UJ 


ca 

u 


o 

Q 


>>  <3 

<1 

o 

H 

> 

Cfl 

a 

w 

a 

PS 

a 


sX*ep  ui  passaad 
-xa  ^(pjn^'Bra  aS'eaaAy 

PS 

DOMESTIC  BILLS  OP  EXCHANGE  MATURED  WITHIN 

IT  2?  01  *100 
sqquotu  9 

(In  percentage  of  total  amount  purchased) 

N 

tH 

sqiaora  g 
X'Bnoiqipp'B  ay 

- 

6 2?  8 ’IOO 
sqquoui  & 

© 

qquoiu 
I'euoiqippB  uy 

© 

L ^ 9 lOQ 
sqquoui  g 

GC 

qquoiu 
X^aoiqipp^  uy 

r» 

9 19  * 'loo 
sqquotu  z 

© 

qquotu 
p2aoiqippT2  uy 

us 

£ ^ z *ioo 
qquora  9UO 

sX'ep  9 1 
I'Buoiqipp^  uy 

PS 

s£ep  et 

M 

Month 

- 

Jan. 

Dec. 

Year 
191  ..  . 

BILLS  OF  EXCHANGE  ON  HAND  MATURED  WITHIN 


w 

w 

S 

cs 

o 

h 


c IS 

gs 

o 

0 

> 

0 

0 

tn 

0 

0 

J 

<! 


207 


k 

k. 


- 

o 

t- 


DISTRIBUTION  OF  CREDIT,  CLASSIFIED  ACCORDING  TO  LIMITS 

1 More  than 
$500,000 

z ioo  jo  , 

•JU90  J9Cl  UJ 

sj^npiAipui 
pue  siuig 
jo  aaqum^; 

1 $100,001 
$500,000 

Z ioo  jo 
'JU99  J9d  UJ 

M 

spmpiAipui 
pue  siuig 
jo  jaqumjsi 

N 

$50,001 
S1C0  0 

z qoo  jo 

•JU90  J9d  UJ 

a 

sienpiAipui 
pue  siuig 
jo  jgqum^; 

o 

$25,001 

$50,000 

Z ioo  jo 

•JU90  J9d  UJ 

Ci 

si-enpiAipui 
pue  siuig 
jo  jgqumj^; 

GO 

$10,001 

$25,000 

Z 'IOO  jo 
•juao  jad  nj 

Sl^npiAipUT 
pu"e  siuig 
jo  J9qran^[ 

o 

$1,000 
$10,000  | 

Z IOO  JO 
•juao  jo  cl  uj 

spenpiAipai 
pu^  siuig 
jo  aaqum^ 

Firms  and  indi- 
viduals who  are 
eligible  for 
credit  facilities 

pnoj 

JO  'JU90  J9d  UJ 

« 

j9qumM 

N 

Lines  of  business 

Commerce,  Trans- 
portation and  In- 
surance 

Finance  and  Bank- 
ing 

Manufacturing 

Industries 

Agriculture,  Forest- 
ry and  Fisheries 

Miscellaneous  (in- 
cluding Mining 
Industry) 

TOTAL 

208 


FEDERAL  RESERVE  BANK  OF 

Bills  of  Exchange  Remaining  Unpaid  at  Time  of  Maturity. 


Total 

juamX'ed  joj  pa 
-juasajd  sqiq  q'e 
jo  anaa  jad  uj 

junoaiy 

© 

jnaunted  joj  pa 
-jnasajd  spiq  pn 
jo  juao  jad  uj 

«o 

sinaji  jo  jaqum^ 

Other  Two  Name  Paper 

jnamJnd  joj  pa 
-jnasajd  spiq  pn 
jo ■ juaa  jad  uj 

w 

junouiy 

N 

juain^'ed  joj  pa 
-juasajd  sqiq 
jo  ‘juaa  aad  uj 

5 

suiajj  jo  jaquinjsj 

© 

Banker’s  Acceptances 

juain^'Bd  joj  pa 
-juasajd  sqiq  q'e 
jo  *jnaa  jad  uj 

a 

junoury 

GO 

juara^'Bd  joj  pa 
-jnasajd  sqiq  q*e 
jo  ’juaaj  jad  uj 

r» 

suiaji  jo  jaquinjsj 

© 

Single  Name  Paper 

q ii.Hii a i.'(  j joj  pa 
-jnasajd  spiq  pe 
jo  -juaa  jail  uj 

jnnoray 

jnamX'Bd  joj  pa 
-jnasajd  sqiq  q'e 
jo  -juaa  jad  uj 

n 

suiajx  jo  jaqinnjsj; 

N 

Mo. 

* 

Jan 

Dec .... 

Year 
191.. . . 

209 


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Miscellaneous  (including 
Mining  Industry) 

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junoray 

CD 

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Agriculture,  Forestry, 
Fisheries 

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junouiy 

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Manufacturing  Industry 

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junoray 

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Commerce,  Transportation 
Insurance 

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junoray 

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Month 

«N 

Jan. 

Dec. 

c3~ 

oa 

210 


Rates  of  Discount. 

(Classified  according  to  the  number  of  changes  and  time  of  existence  of  each  rate.) 


> 

M 

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a 

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* 

B 

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NUMBER  OF  DAYS  ON  WHICH  THE  FOLLOWING  RATES  WERE  IN  FORCE 

00 

13 

X 

N 

b- 

= 

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to 

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tS. 

£ 

LO 

CO 

■US. 

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to 

Vi. 

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Vi. 

£ 

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ts. 

CO 

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Number 

of 

changes 

0? 

Month 

- 

Jan 

Dec 

Year 
191..  . . 

211 


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REASONS  FOR  DECREASE 

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suosboh 

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REASONS  FOR  INCREASE 

> 

pauiqtnoa 
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suos^an 

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Date 

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Rate  of  Discount 

Open 
market 
3ol.  1 
1 * 

© 

Federal  Re- 
serve Bank  1 
At  date  C 

% 

a 

Percentage  of  cash  on  hand 
against  Deposits  and  Notes 

Decrease 

% 

CO 

Preceding 

week 

(or  month) 

% 

On  date  of 
Col.  1 

© 

Amount  of  Deposits  and  Notes 
issued  not  secured  by  cash  on  hand 

Increase 

l 

Preceding 

week 

(or  month) 

On  date  of 
Col.  1 

Season  (crop, 
quarterly 
dividend, 
taxes,  etc.) 

Date  ' 

- 

213 


> 

k 

k 

s 

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fa 


fa 

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k 

«■< 

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fa 

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BS 

B 

!*) 

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x 

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c 

rt 

OQ 

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X 


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o _ 
ft  s 
3 

H 


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<D 

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u 

O 

M- 

T3 

C 

(8 


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Q 

0) 

X 

H 


Percentage  of 
all  bills  of  ex- 
change to 
deposits 

GO 

Surplus  of  de- 
posits over  all 
bills  of  ex- 
change 

Amount 

r- 

All  bills  of  ex- 
change. on 
hand 

Amount 

CD 

Percentage  of 
domestic  bills 
of  exchange 
to  deposits 

Surplus  of  de- 
posits over 
domestic  bills 
of  exchange 

Amount 

Domestic  bills 
of  exchange 
on  hand 

Amount 

n 

Deposits  of 
member  banks 

Amount 

N 

Week  ending 

Jan.  7. 
“ 14. 

“ 21. 

Dec.  30. 

Average 
Year  191  — 

214 


Fluctuations  of  The  Discount  Rates  and  Statistics  Regarding  Factors  of  The  Money  Market  Affecting  The  Same. 


Classification  of  Investments  in  Securities  (Sec.  14b.) 


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M 

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K 


r; 

IS 

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fa 


w 

a 

fa 

0 

fa 

fa 

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fa 

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fa 

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fa 

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1 

Q 

fa 

fa 


Grand  Total 

SJISOdOQ  jfjos 
-induioo  jo  % 

1 ** 

1 

| 

junouiy 

M 

W 

BILLS,  NOTES,  REVENUES,  BONDS  AND  WARRANTS  OF 

O 

sjisodOd  jCjos 
-induioo  jo  % 

N 

N 

I^OX  pu-BJO 
jo  -juaa  jOjj 

W 

1 

] 

junoray 

O 

N 

Municipality 

I'ejox  pu^jo 

JO  -JU0O  J8X 

a 

| 

SitUp  UI  9UQ 

CO 

junoray 

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Political 

Subdivision 

l^jox  puujo 

JO  ’JU90  J9J 

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1 

| 

sX'ep  ui  onQ 

- 

junouiy 

s 

District 

I'BJOX  PU'BJO 
JO  ‘JU09  JOJ 

M 

SiCup  ui  9n<j 

N 

junouiy 

s 

County 

l^ox  pu-ejo 
JO  -JU80  J9J 

© 

sAup  uiana 

a 

(junoury 

X 

State 

IBjox  pu^jo 

JO  JU90  J9X 

r» 

S^up  UI  911(1 

© 

innoray 

U.  S.  Bonds 
or  Notes 

sjisodap  iIjos 
-puluioo  jo  % 

I'BQOX  pnnj0 
JO  -JU9D  J9c[ 

W 

(junouiy  | 

w 

Week 

ending 

- 

Jan  7 
“ 14 

“ 21 

Dec.  31 

Average 

Year 

216 


Index 


Page 


Accounting, 

place  of  2 9 

in  branches  41 

for  Foreign  Exchange  department 92ff. 

two  systems  presented  100 

scope  and  problems  of 100 

general  plan  of 102ff. 

alternative  general  plan  of 129ff. 

Accounting  Department, 

of  reserve  banks 151 

Advisory  Council, 

work  of  98 

Application  (membership) 

blank  4 

Auditor, 

of  reserve  bank 25 

Ballots, 

regulations  for  4 

Bendix,  Ludwig, 

on  statistics 170 

Benton,  A.  A., 

member  of  sub-Committee  on  Accounting- 101 

signs  report  101 

co-operates  in  accounting  system 102 

Bills  of  Exchange, 

how  bought  88 

statistics  of  172ff. 

Bookkeeping  Department, 

of  reserve  banks  120,  148 

Bonds, 

of  reserve  agents 5 

of  officers  of  reserve  bank 25 

of  agents,  how  controlled 40 

Borrowing, 

habits  of,  in  relation  to  districting 9 

Branches, 

rules  for 4 

foreign  5 

of  reserve  banks,  how  established 25 

modes  of  establishing 41 

capital  of  42 

by-laws  of  43ff. 

directors  of  4 3 

discount  committee  of 44 

officers  of  44 

foreign,  establishment  of 45 


217 


Page 

foreign,  how  managed 47 

clearing  methods  of 8,  62 

Broderick,  J.  A., 

signs  report 101 

member  subcommittee  on  accounting 102 

By-Laws, 

general  4 

for  reserve  banks 43 

for  reserve  board 95ff. 

of  federal  advisory  council 99 

Cable  Transfers, 

how  bought  89 

Capital, 

reduction  of  4 

Capitalization, 

of  reserve  banks 7 

average  of  11 

Cash, 

statistics  of  170 

Certificates  of  Stock, 

how  signed  26 

Chairman  of  Reserve  Board, 

his  duties  95 

Checks,  see  items. 

Chief  Clerk, 

duties  of  104 

Cities, 

for  reserve  banks 15 

designation  of,  omitted 17 

Clearing, 

plan  5 

relation  to  districting 7 

first  system  explained 4Sff. 

stamp  for  * 53 

alternative  system  64 

between  reserve  banks 55 

views  of  expert  on 68 

accounting  for  115,  131 

Code  Book, 

requirements  of  100 

Collection, 

detail  of  charges  for 5S 

mode  of  conducting 66 

items  originating  with  non-member  banks 67 

time  used  in 67 

accounting  for  137 

Collection  Department, 

accounting  for  115 

Commercial  Paper, 

discussion  of  73f£. 

single  name  7 6 

recommendations  regarding  79 


218 


Tage 


Compensation, 

schedule  of  4 

Conversion, 

rules  for  4 

Correspondence, 

how  managed  27 

Correspondents, 

of  reserve  banks,  how  chosen 90 

Credit, 

statistics  of  170 

Credit  Bureau, 

organization  of  36 

records  of  37 

use  of  38 

Counsel, 

of  reserve  bank 25 

Dawson,  Ralph, 

member  of  sub-Committee  on  Accounting 101 

signs  report  101 

Deposits, 

statistics  of  171 

Designation  of  Cities, 

mentioned  4 

Differential  rate  on  paper  suggested 77 

Directors, 

lists  of  4 

choice  of  17 

of  reserve  banks,  powers  and  meetings  of 22 

of  branches 42 

discount  committee  of  branches 44 

Discount  Committee, 

at  branches  44 

Distributing  Desk, 

accounting  of  131 

District, 

certificate  of  limits 4 

Districting, 

method  6 

principles  of  12 

problems  of  13 

District  Map, 

enumerated  4 

Dividends, 

record  of  4 

Domestic  Business, 

of  reserve  banks  73 

Domestic  Exchange,  see  Clearing. 

Electors, 

Certificate  of  election 4 

lists  of  4 

219 


Page 

Examination, 

reserve  banks 4,  34 

of  member  banks,  plan  of 32,  35 

of  other  banks 34 

of  agent  35 

Executive  Committee, 

of  reserve  banks 23 

Expenses, 

levy  for  4 

Farnham,  S.  H., 

member  sub-Committee  on  Accounting 101 

signs  report  101 

co-operates  on  accounting  system 129 

Federal  Clearing  House, 

explained  57 

Fisher,  E.  D., 

member  sub-Committee  on  Accounting 101 

signs  report  101 

Foreign  Branches, 

how  far  to  be  established 85 

how  organized  and  managed 91 

Foreign  Exchange,  • 

provisions  of  reserve  act 83 

control  of  by  reserve  board 84 

scope  of  operations  in 85 

methods  of  dealing  in 86 

manager  of  87 

funds  for  use  in SS 

accounting  for 92,  117ff.,  155ff. 

Forms, 

for  statistical  bureau 187ff. 

for  accounting,  see  Portfolios  I,  II,  and  III,  referred 

to  on  pp 102,  129 

General  Books, 

of  reserve  banks 150 

Gold, 

how  imported 89 

statistics  of  170 

Governor, 

of  Reserve  Board,  his  duties 95 

Installation, 

of  reserve  system,  date  for 101 

Investment  Securities, 

accounting  for  110 

Items, 

how  cleared  54,  55 

Key  Letters, 

how  used  122 

Letter  of  Transmittal 3 

Loans, 

Accounting  for 104,  139 


220 


Page 


Mail  Teller, 

accounting  for 130 

Management, 

internal,  of  reserve  banks 26 

Manager, 

of  foreign  exchange  business,  functions  of 87 

Marwick,  Mitchell,  Peat  & Co., 

relation  to  accounting  work 101 

report  of  102ff. 

Maturity, 

of  paper  81 

May,  Max, 

aids  committee  3 

Member  Banks, 

examination  of  32 

clearing  functions  49 

outside  city  52 

must  endorse  paper 80 

Municipal  securities, 

discussed  81 

Nominees  (Directors), 

lists  of  4 

Non-member  Banks, 

how  related  to  clearing 64 

prohibition  on  items  of 67 

Note  Brokers, 

to  endorse  paper 78 

Notes, 

rules  for  issue 5 

form  of  5 

application  for  31 

identification  of  33 

accounting  for  146 

Note  Teller, 

accounting  for 112,  134 

Oath  of  Office, 

of  reserve  board 4 

Open  Market  Operations, 

discussed  8 Iff. 

Organization, 

Certificate  4 

chief  features  of 20 

departments  of 21 

of  reserve  banks 22ff. 

of  reserve  board 95ff. 

Organization  Committee, 

functions  of  18 

Paying  Teller, 

accounting  for Ill,  132 

Protest, 

in  relation  to  clearing 62 


221 


Page 


Purchases, 

of  paper  5 

Railway  Time, 

in  relation  to  districting 7 

Rates  of  Discount, 

statistics  of  179ff. 

Receiving  Teller, 

accounting  for  Ill,  134 

Rediscounts, 

accounting  for  105 

Remittance, 

method  of  52 

Report, 

Genesis  of  3 

Reports, 

annual  4 

by  reserve  agent 32 

Reserve  Act, 

principles  of,  in  relation  to  districting 12 

on  choice  of  directors 17 

on  agents  30 

on  clearings  48 

on  commercial  paper 73 

on  open  market  operations 81 

on  foreign  exchange 83 

on  advisory  council 98 

Reserve  Agent, 

books  for  4 

duties  of 24,  30 

records  of  31 

plan  of  work 32 

examinations  by  34 

accounts  of  126,  167 

Reserve  Banks, 

elements  of  organization 20 

departments  of  21 

by-laws  of 22 

officers  24 

clearing  functions  4Sff. 

relation  to  member  banks 52 

to  one  another  55 

to  federal  clearing  house 57 

relation  to  banks  in  other  districts 65 

Reserve  Board, 

relations  with  agents 32 

on  open  market  transactions 81 

organization  of  95 

by-laws  for  95ff. 

meetings  96 

budget  of  97 

business  97 


222 


Page 


Reserves, 

in  relation  to  districting 14 

Robinson,  C.  C., 

aids  committee  3 

co-operates  in  accounting  system 101 

Seal, 

of  reserve  board 9G 

Secretary, 

of  reserve  board,  his  duties 96 

Secretary  of  the  Treasury, 

accounts  of  169 

Secretary-Treasurer, 

of  reserve  bank,  his  duties 24 

Securities  Department, 

of  reserve  bank 153 

Shareholders, 

records  4 

Single  Name  Paper, 

how  far  used 75 

provided  for  76 

restriction  of  7 8 

Speculation, 

how  viewed  by  reserve  act 7 4 

Statistical  Bureau, 

use  of  39 

plan  for  170ff. 

Stock, 

transfer  4 

subscription  ledger  19 

Subscriptions, 

rules  for  4 

Tellers’  Departments, 

accounting  for llOff.,  132ff. 

Time  Schedules, 

use  in  clearing 68 

Transfer, 

of  funds  5 

of  stock  in  reserve  banks 26 

agent  for  28 

accounting  for  113 

Transfer  Agent, 

work  of  2 8 

Transfer  of  Stock,  see  Stock. 

Transit, 

accounting  for  135 

Transit  Expert, 

views  of,  on  clearing  problem 68 

Transit  Problem, 

difficulty  of  64 

Two  Name  Paper, 

how  used  75 

preferred  77 


223 


Page 

Unpaid  Items, 

accounting  for  113 

Vault, 

management  27 

Vice-Governor, 

of  reserve  board,  his  duties 96 

Vice-President, 

of  reserve  bank,  duties 25 

Ward,  Harry  E., 

aids  committee  3 

co-operates  in  accounting  system 101 

Williams,  Hon.  John  Skelton, 

instructions  of  3 

Wolfe,  O.  H., 

member  of  sub-Committee  on  Accounting 101 

signs  report  101 

Willis,  H.  P„ 

member  sub-Committee  on  Accounting 101 

signs  report 101 

Van  Vechten,  Ralph, 

aids  committee 3 


224 


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